Online Businesses The Winners This Earnings Season

Investors are always looking for clues for hot stocks to buy and the recent flurry of earnings reports points to a potentially powerful indicator of future growth – online presence.

It is no secret that online sales are on the rise globally.  Some of Australia’s best performing stocks operate exclusively online and in many cases that presence has allowed them to boom in an economy under pressure.  Others are in the infancy of establishing online outlets to supplement brick and mortar businesses, especially in the retail sector.  Here are 8 ASX stocks with an existing online presence:

The first six stocks in the table have a well-established online presence; in fact, most operate exclusively online. 

Carsales.com (CRZ) is one of the most successful online businesses in Australia.  Here is a one year price chart for the company:

Carsales.com’s stellar earnings release on 14 August sent its share price shooting up by 20%.  The company announced a 23% rise in both NPAT (Net Profit after Tax) and EPS (Earnings per Share).  NPAT went from A$58.3 million a year ago to A$71.6 million for the current fiscal year.  EPS went from 25 cents per share to 30 cents per share. 

Carsales quarter over quarter results are also outstanding and its ROE (Return on Equity) of more than 60% is far above the minimum 15% benchmark value investors like to see in a company before they buy.

Carsales is a classic example of how a relatively new company – with the aid of new technology (i.e. the internet) – can grow into a goliath, winning signficant market share.  Beginning as nothing more than a place to run classified ads for automobiles, Carsales expanded to include almost anything on wheels.  Today they operate 21 different websites across automobiles, farm and construction machinery, caravans, boats, bikes, accessories, and services for dealers who merchandise and finance the purchase of these items. The company has rolled out apps for mobile access to their sites, which are continually redesigned and upgraded. 

Market research studies claim that an outstanding 75% of all internet searches for automotives go through Carsales websites. 

Ancillary services is another growth area for the business. Carsales has four websites dedicated to meeting the needs of businesses – such as pricing and vehicle identification databases and market research reports. 

Another online business that has defied the market downturn is Seek Limited (SEK).  Here is a one year chart for the company:

On 22 August, Seek reported a 29% increase in revenue and a 35% increase in both NPAT and EPS.  Revenue soared from A$343 million to A$442 million.  Net Profit after Tax rose from A$98 million to A$132 million and Earnings per Share increased from 14.3 cents per share to 17.3 cents per share.

Like Carsales, Seek has cemented its position as the leading player in Australian classified employment advertising – winning signficant market share.

Job searchers on Seek can also access a wide range of vocational and higher education courses online. The website also lists businesses for sale for those interested in self employment.  Some of their educational programs are available in traditional classroom settings.  Like all serious online players, Seek offers an app for mobile access to their site offerings.

REA Group (REA) is another online operator with dominant market share in its field.  The company owns and operates the most visited residential and commercial sites in Australia – realestate.com.au and realcommercial.com.au.  They also operate websites in Italy, Luxembourg, and Hong Kong.

Like the other two players we have discussed, REA has expanded into ancillary services.  They have a rental property site and a professional services site for real estate agents.  Here is a one year price chart for REA:

On 28 August REA reported another stellar result; revenue was up 16%, from AU$238 million to AU$278 million;  NPAT rose 29% from AU$68 million to AU$87 million and EPS grew 25% from 53 cents per share to 66 cents per share.

Online travel service provider Webjet Limited (WEB) has rewarded its shareholders lately; its shares are up 95% year over year.  Webjet reported blockbuster earnings on 09 August;  sales transactions increased 30% from A$592 million to A$768 million;  NPAT rose from A$11 million to A$13.6 million, an increase of 24%.  Earnings per Share grew 31% from 14.3 cents per share to 18.8 cents per share.  Sales and EPS have grown every year since 2005.  Here is a one year price chart for WEB:

Webjet is the second leading online travel site in Australia and plans to continue expanding its online offerings across flights, hotels, and insurance.  The company also intends to add travel packages in the future. 

Flight Centre Ltd (FLT) offers a contrasting business model within the travel industry.  FLT serves both residential and commercial markets through a network of licensed travel agents as well as directly online.  How does their performance compare to WEB?  First, let’s look at a one year share price chart:

Flight Centre’s earnings don’t quite come up to the level set by Webjet.  FLT’s advantage lies with their wholesale operation in the commercial segment but overall, analysts get more hot and bothered over the growth potential of WEB. 

On 28 August, FLT reported a 9% increase in revenue from A$1.86 billion to A$2.02 billion and a 43% NPAT increase from A$139 million to A$200 million. 

Understandably, Flight Centre’s cost of doing business is substantially higher than a pure online provider like Webjet.  However, the company’s performance to date suggests they know how to effectively use a multi-channel distribution strategy.

We include Domino’s Pizza (DMP) in the table because they currently generate 50% of sales from online ordering. 

At its current share price, some analysts think that Domino’s is looking fairly valued – with HOLD or NEUTRAL recommendations fairly common on the stock.  

Domino’s grew NPAT 25.7% to A$26.9 million and EPS increased 26.9% to A$39.9 million.  The company expects to increase online sales to 80% of total sales by 2015. 

During 2012 they added two online ordering platforms, one on Facebook and a new Catering option.  This option allows you to input the number of people to be entertained and the system returns a variety of package deals at different price points. 

The final two stocks in the table are from the bloodied retail sector and the numbers from our table show an interesting contrast.  JB HiFi (JBH) – the number 1 stock on the Top Ten Shorted List – managed to eke out some positive fundamentals but its share price is battered and bruised.  Myers Holdings (MYR) shows poor fundamental performance, yet the share price has not been beaten as badly as the superior performing JBH. 

JB Hi-Fi’s recent earnings release showed a 22.1% drop in NPAT and a 15.1% drop in EPS.  Australian retailers have largely delayed developing online sales platforms and JBH was no exception, although they started earlier than many others.  The company reported a 77.3% increase in online sales coming in at $50.8 million.  However, that figure represents only 1.62% of total revenue.  JBH has ambitious plans to increase its online offerings and the results of the company’s efforts bear watching.

Analysts are sceptical of Myer’s capital investment in expanding and improving its online presence, flatly stating the amount is not enough.  However, Myers is online and has opened a Chinese site.  While MYR is a high risk proposition, they are collecting information from the company’s three million member customer loyalty program that could provide insight into improving its online platform and offerings.  Myer already generates 60% of total sales from customer loyalty members.

While an increasing number of Australian companies are establishing some form of online presence, it is difficult to accurately assess the impact on profitability of their efforts.  A recent study performed by market research firm Roy Morgan Research for PayPal showed some promising results for the Small Business sector (SMBs).

The Morgan study found that businesses with at least one year of online sales grew by an average 5% while businesses with no online presence declined 4%.  The survey included 200 small to medium sized businesses, all in the retail sector. 

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