Sleepers in the E-Commerce Boom

by Justin Dove

Sleepers in the E-Commerce Boom

by Justin Dove, Investment U Research

Tuesday, June 28, 2011

E-commerce is one of the few areas of constant growth in the United States these days. It's the reason Wal-Mart (Nasdaq: WMT) wants to unseat Amazon (Nasdaq: AMZN) as the leader in online retail sales.

Check out what the first-quarter 2011 comScore report had to say about online retail sales:

  • Online retail sales totaled $38 billion in the first quarter of 2011. This marks a 12 percent rise over the first quarter of 2010.

  • It is the sixth straight quarter with positive growth over the previous year and the second consecutive quarter with double-digit growth over the previous year.

  • The number of online buyers increased by seven percent.

  • The transactions per buyer increased by nine percent.

  • The dollars per transaction fell by four percent, meaning people are purchasing a wider array of products.

These growth trends are expected to continue. Especially when fuel isn't getting any cheaper. As gas prices continue to rise over the long term, consumers will look to save money on transportation and buy more products online.

U.S. Online Retail Sales - Projected 2009 - 2014

(Courtesy: Tech Flash, Forrester Research)

And while companies like Walmart and Amazon will continue to rank in profits, there is another class of winners that not many people consider. Transporting companies and credit card firms will reap the benefits. No matter who ends up dominating the sales market, these companies will benefit from the overall growth in the sector.

Stand and Deliver With UPS and FedEx

The top shipping companies are FedEx (NYSE: FDX) and UPS (NYSE: UPS). Both have been doing quite well.

FedEx just released these key figures for 2010:

  • Revenue increased 13 percent.

  • Operating income improved by 19 percent.

  • Net Income increased 23 percent.

  • Adjusted earnings per share improved to $4.90 from $3.76 in 2009.

FedEx also came in one spot ahead of Amazon at number eight in Fortune's 2011 list of "The World's Most Admired Companies."

FedEx appears to be very healthy, but UPS is about double the size of FedEx and experiencing similar growth. The stock has steadily climbed back to pre-recession levels after a big dip early in 2009.

Here's what UPS reported about their 2010 growth back in April:

  • Global revenue grew 7.3 percent and produced a 21 percent increase in operating profit.

  • UPS generated 900 million in free cash flows in 2010, increasing dividends by more than 10 percent.

  • Earnings per share increased to $4.40 from $4.15

With Visa and MasterCard... Cash Isn't Always King on the Internet

It's obviously impossible to pay in cash for things that are purchased online, so credit card companies will also benefit from online sales improving. The two dominant players here are Visa (NYSE: V) and MasterCard (NYSE: MA).

  • Visa has a strong outlook for 2011 through the first two quarters. They see revenue growing between 11 and 15 percent and annual free cash flow in excess of $3 billion by years end. They also plan to lower the supply of the stock by buying back $1 billion worth of common shares.

  • Visa also announced a new feature called Digital Wallet which will make it more efficient to purchase things online. They will partner with various large banks and provide a "Click-to-Buy" functionality for customers of these institutions. According to the report it will hit the market in fall of 2011.

  • MasterCard reported double-digit growth in the first quarter of this year over the first quarter of 2010. Revenue increased by 14.8 percent and net income increased by 19.4 percent. The stock, which peaked at over $300 per share, is finally getting close to that level after being cut in half by the recession.

These services are crucial to the growth of online sales. Retail sales online could not exist without the ability to exchange currency and deliver products across the globe. So as long as online retail sales growth is strong, so will the growth of the infrastructure that is supporting it.

Good investing,

Justin Dove

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