With parents and students opening up their wallets before schools and colleges open their doors for the new semester, investors should keep a close eye on tech companies Apple, Amazon and eBay, which are poised to ride the massive back-to-school spending wave.
While Silicon Valley has recently felt the strain of cautious enterprise spending, consumers can pick up some of the slack this time of year. According to the National Retail Federation, combined K-12 and college spending is expected to reach a combined $83.8-billion (U.S.) in 2012, up from $68.8-billion in 2011.
For Apple, this means tapping the phenomenal popularity of its gadgets amongst schools and students, while online retailers Amazon and eBay are looking to grab fresh e-commerce dollars.
"I think both Amazon and eBay are very nicely positioned for back to school," noted Sandeep Aggarwal, Internet analyst at research firm Digital Route, in an e-mail to TheStreet. "Both are riding the e-commerce adoption and, in the case of eBay, sizable investments in mobile and traction for Paypal are providing further tailwind."
From backpacks to books, online shoppers are expected to spend significantly more than traditional shoppers before colleges and schools reopen, according to The National Retail Federation. Consumers using the Internet for their purchases are estimated to spend an average of $874 on back-to-school supplies, 27 per cent more than the overall shopper average.
Read on for more details on why Apple, Amazon and eBay are top back-to-school tech stocks:
Market Cap: $588.41-billion
Apple makes it onto the list of top 'back to school' tech stocks thanks largely to the iPad's growing popularity. Despite missing analysts' top and bottom line estimates in its fiscal third-quarter results last month, the tech giant sold a massive 17 million iPads during the quarter, an 84-per-cent hike on the same period last year.
Specifically, the iPad is enjoying phenomenal success in schoolrooms and college dorms. During the third quarter, Apple sold just under a million iPads into the education sector, setting a new quarterly record. "The adoption rate of iPad in education is something I'd never seen from any technology product in history," noted Apple CEO Tim Cook, during the firm's earnings conference call.
Apple, it should be noted, also enjoyed record Mac sales to U.S. education institutions during the quarter, but sold twice as many iPads into the space.
Analysts predict that Apple's rumoured plan to launch a smaller and cheaper version of its existing tablet will boost its education footprint.
"We believe an 'iPad Mini' would further the company's efforts in this vertical," explained Topeka Capital Markets analyst Brian White, in a recent note. "The continuing demand for the tablet device highlights the disruptive potential of the iPad and we expect a lower priced 'iPad Mini' device to be released this fall, significantly expanding Apple's market opportunity."
There's also Apple's eagerly anticipated next-generation iPhone, which could make its debut in the coming weeks. With speculation mounting that Apple may launch the so-called iPhone 5 on Sept. 12, the Cupertino, Calif.-based company could get the new phone into the hands of college students shortly after the start of the semester.
Research data from the Pew Internet & American Life Project, the University of Colorado and Nielsen, compiled by OnlineColleges.com, cites Apple's iOS as college students' favorite mobile operating system, way ahead of Research in Motion's BlackBerry OS, Google's Android and Microsoft's Windows Phone.
Clearly, there's massive pent-up demand for the new iPhone, as evidenced by the recent lull in iPhone sales as consumers await the device. Already touted as potentially the biggest product launch in Apple's history, the new iPhone could serve as one of the big catalysts driving the company's stock beyond Friday's closing price of $621.70. Topeka's White, for example, has a price target of $1,111 on Apple.
While the new iPhone's impact may not be fully felt during Apple's fiscal fourth quarter, investors would be foolish to underestimate the smartphone's appeal for younger consumers, particularly the back-to-school crowd.
Market Cap: $105.56-billion
The back-to-school quarter is always a key one for online retailer Amazon, which has become a valuable resource for students and their parents.
"So far as back-to-school stocks go, Amazon would definitely be on my list," explained Charles King, principal analyst of Pund-IT, in an e-mail to TheStreet. "Not only has the company become the de facto source for students to buy gear of every sort, including electronics (laptops and packages, as well as entertainment devices) but the increasing availability of electronic textbooks should give the company's book and Kindle sales a boost."
Amazon is also said to be preparing an imminent revamp of its Kindle tablet product line, which could potentially bolster its back-to-school, and also its holiday season, revenues. Rumours have been swirling for some time that Amazon plans to launch a 10-inch version of the Kindle Fire, larger than its existing 7-inch devices, and closer in size to Apple's iPad.
The company has not yet responded to TheStreet's request for comment on its Kindle plans, although it did unveil the Kindle Fire in late September 2011, which may indicate a late summer-early fall launch for its successor.
"They continue to expand into additional product categories, which helps them every year," Ken Sena, an analyst at Evercore Partners, told TheStreet. Mr. Sena has a buy rating on Amazon.
Amazon has also shown it understands the vast market opportunity offered by students. Earlier this month, for example, the company expanded its textbook rental service from Kindle-based textbooks to physical textbooks. The retailer offers students a choice of thousands of titles that can be rented for the semester.
The Seattle company also offers Amazon Student, a free membership program exclusively for college students, which provides six months of free two-day shipping on millions of items and exclusive offers via e-mail. Clearly, Amazon is keen to win students' hearts during their college years, with a view to winning their wallets when they graduate.
History certainly points to robust top line growth for Amazon. The company's media business, which encompasses books, DVDs and music, grew revenue 24 per cent year-over-year during the third quarter of 2011. Sales of Amazon's electronics and other general merchandise rose 59 per cent over the same period, with the company's overall revenue growing 44 per cent compared to the prior year's quarter.
Amazon's third-quarter earnings, however, came in just below Wall Street's estimates, although this can be attributed to the company's expansion efforts as opposed to any customer reticence. On the contrary, Amazon grew its active customers by 26 per cent during the quarter, its fastest growth since early 2004.
Overall, Amazon continues to attract plenty of positive attention from analysts. "We view Amazon.com as one of the few large-cap opportunities to have secular exposure to e-commerce, which is gaining share from off-line retailers," explained Oppenheimer & Company analyst Jason Helfstein, in a recent note. "In addition, Amazon continues to gain share of U.S. e-commerce with its deep product selection, low-cost express delivery through its Prime program, and breakthrough success of its Kindle e-reader platform."
As the online source for everything from bedding to tablets and laptops, investors should keep an eye on eBay during the coming months. The resurgent retailer looks set to ride the back-to-school wave, laying the foundations for a strong second half of 2012.
"I really do think that they are a big beneficiary of 'back to school' and, more importantly, of the holidays," explained Think Equity analyst Ronald Josey, who has a buy rating on the stock.
The online auctioneer posted strong second-quarter results last month, boosted by its booming mobile businesses, which bodes particularly well for the coming weeks.
eBay has described mobile as a "game changer" and expects its eBay and PayPal mobile offerings to each deliver $10-billion of transaction volume in 2012, more than double 2011's volume. "Their focus on mobile, we believe, is attracting a younger consumer, which is attractive from a longer-term perspective," noted Think Equity's Mr. Josey. "More and more of their business is coming from mobile."
During the second quarter, eBay also continued the turnaround in its core Marketplaces business, which enjoyed some of its strongest growth since 2006. The numbers helped prompt Evercore Partners to raise its eBay price target. "Marketplace's success in achievinggrowth commensurate with the industry, PayPal's large and growing addressable market opportunity, and the overall company's continued progress in mobile makes eBay an increasingly compelling investment proposition," noted Evercore's Mr. Sena, in a recent note.
Although eBay came to prominence as an online auction site, the retailer has also been aggressively growing its fixed-price business, which Think Equity's Mr. Josey says will boost the company's margins. During the second-quarter, eBay's fixed price business accounted for 65 per cent of its gross merchandise volume (GMV). Excluding vehicles, fixed-price GMV grew 20 per cent year-over-year.
"It's clearly growing faster than e-commerce," noted eBay CEO John J. Donahoe, during the company's second-quarter conference call.
History also provides some positive hints for investors. Last year's third quarter was also a solid one for eBay. The San Jose, Calif.-based firm edged past analysts' revenue estimate and met Wall Street's profit forecast.
Like last year, the retailer also looks set to benefit from the growing popularity of online shopping. According to the National Retail Federation, just under 40 per cent of consumers will purchase at least one item online during the back-to-school season, up from just under 11 per cent in 2003.
Crucially, eBay also maintained its full-year revenue guidance when it reported its second-quarter results recently, despite the macroeconomic headwinds faced by much of the tech sector.
TheStreet Ratings has a buy rating on eBay.