Internet services companies have become divided in two majors groups, where size and existing market share are two of the major factors that determine business success for companies in this industry. In e-commerce, the last several years there has been a greater differentiation between the haves and the have-nots, analysts say, adding that there’s consolidation in the space where the smaller have-nots tend to get bought by larger companies before they reach a critical size. Analysts say there is potential for expansion in other countries, especially countries where the postal services are still developing. In countries such as China, however, there already are dominant players in e-commerce, but analysts say there are still niches that could be filled by non-Chinese companies.
Online advertising is a growing category, analysts say, but only if mobile is included. Although pricing has fluctuated for online advertising, analysts say there still is a tailwind, but it is still being figured out by companies. Analysts note, however, that spending hasn’t exactly come at the expense of more traditional media. They say mobile viewing of content will eventually win, but traditional viewing methods are not expected to disappear.
In the general internet services space, when choosing stocks, analysts say category winners — the best in class — are the names to pick. Once a company gets a certain amount of traffic online, it’s hard to dethrone a category leader and change customer behavior. Another reason investors may want to look at larger companies is that analysts warn investors to be careful about internet stocks that have limited liquidity or a limited Wall Street following, as these can have violent swings in price in any direction.
On the storage side, analysts say data center REITs have performed well over the last two years. This year the six publicly traded data center REITs on average have seen their stocks appreciate 33% this year versus the S&P 500 at 7%, they say.
Data center REITs operate the buildings that are the brains of the internet, analysts say, and these buildings have been in short supply and have seen increased demand because there has been an explosion on the need for data storage. Because data center REITs can build out facilities more efficiently than their customers, companies have been outsourcing to them. The cloud is booming, according to analysts, and there aren’t enough data centers.
Analysts think we are early in the cycle of this data storage demand boom, not only from the standpoint of demand being seen, but also in the willingness of the enterprises to outsource rather than build their own facilities. Two years ago, 15% of storage was outsourced, they say, and now it’s about 25%. Analysts think over time the majority will be outsourced.
Full report available here.
Report Overview: Transportation & Logistics
August 02, 2016
Report Overview: Medical Devices
August 02, 2016
Report Overview: Education
August 16, 2016
Report Overview: Biotechnology and Pharmaceuticals
August 16, 2016
Report Overview: Consumer Staples & Retail
August 30, 2016
