I have studied internet growth shares very closely ever since 2010. In a stroke of genius, I valued Amazon.com, Inc. as too expensive at that time. The Amazon share price is up 1,675.83% since then.

Australia’s geographical remoteness, not only from the world but also from each other, is well suited to online commerce. The country is presently seeing a spurt of growth for internet banks, none of which are currently listed on the ASX, as well as a continual smattering of small startups predominantly in the software-as-a-service (SAAS) category.

Software as a service

There are several outstanding Australian SaaS companies on the S&P/ASX 200 Index (INDEXASX: XJO). The largest of these is Xero Limited (ASX: XRO). The internet growth share posted its first profit since listing on the ASX last week and saw its share price dip by 8.7% over the week. With ~2 million users, investors are keen to see the company focus on customer acquisition and product development.

The company has grown its customer offerings. Initially it was a pure play cloud-based accounting package. It has since added a range of related functionality areas. These include bank streaming for reconciliation, payroll and inventory tracking. The platform also includes ~800 add on business apps from other providers, embedding it further as business infrastructure. 

Xero sees an annual customer churn rate of ~10%. The majority of this is due to companies going out of business, underlining the company’s staying power. That is, most organisations purchase the service and stay with it.

Internet growth shares in retail

There are 2 major online service providers in the retail space. The first is the country’s current leading internet growth share, Afterpay Ltd (ASX: APT). The second is Kogan.com Ltd (ASX: KGN). Of these 2 shares, I prefer Kogan for a medium- to long-term growth prospect.

The Afterpay empire is built on foundations of unsecured debt. In times of economic hardship, unsecured debt is the first to see defaults. Additionally, the company has already spawned a range of copycat products. While its integration with providers and functionality is pretty slick, that alone doesn’t constitute a competitive advantage. 

Kogan, on the other hand, continues to grow steadily. Aided by stay-at-home conditions, Kogan delivered an impressive Q3 result. The company reported increases against the prior corresponding period of 30% gross sales and 23% gross profit. March saw the company record its largest ever increase in active customers since its IPO.

Additionally, the company announced on Friday the purchase of leading furniture company Matt Blanc for $4.4 million. This adds to its portfolio of companies with strong supply chains. Unlike Amazon, Kogan produces much of its own merchandise, meaning it can not only compete at higher margins, but its products can also be sold on Amazon’s Australian website. The company also has additional services such as insurance, which sets it apart. 

More reading

• Are Xero shares a top long-term buy?
• A vaccine (probably) won’t be a quick fix for the ASX 200
• ASX 200 expected to rocket higher on Moderna COVID-19 vaccine news
• 5 things to watch on the ASX 200 on Tuesday
• Where to invest $500 in ASX shares right now

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Daryl Mather has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Amazon. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Xero and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool Australia owns shares of and has recommended Kogan.com ltd. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Amazon. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The third-quarter update from Commonwealth Bank of Australia (ASX: CBA) forecasts a fall in the Australian house price index, a proxy for house prices, from between 11% to a worst-case scenario of 32%.

In line with this, REA Group Ltd (ASX: REA) reported a 33% slide in residential listings during April. The REA result is slightly misleading. It reports on a period when people were not allowed to leave their houses.

Nonetheless, these 2 figures, combined with a similar National Australia Bank Ltd (ASX: NAB) forecast, paint a bleak picture of the short to medium-term real estate market.

A dip in house prices will reverberate throughout the economy. Companies operating in the construction, insurance, and mortgage sectors will feel the impact. However, some companies are likely to see a lesser impact than others. 

Direct exposure to a fall in house prices

ASX real estate investment trusts and companies dedicated to developing residential housing have the most direct exposure. According to its 2019 portfolio report, Stockland Corporation Ltd (ASX: SGP) has a development pipeline of 76,000 lots of residential real estate. The company estimates this has an end market value of $21.4 billion. A financial impact on this company is inevitable in the case of a fall in house prices.

The Boral Limited (ASX: BLD) share price fell by 10.6% last week. On 15 May, Boral reported concrete volumes were down ~16% and revenue down ~6% for the 4 months ending April 2020, compared with the prior corresponding period.

One ASX share I believe is likely to be less impacted than others is the REA Group share price. When the economy resumes, its previous activity real estate listings are likely to remain constant or slightly lower.

It is likely developers will want to move existing inventory as quickly as possible to limit their losses. As any recession drags on, of course, retail listings become a way for people to downsize and survive in a turbulent market. So while REA too will feel the impact, I believe it will escape the worst of any market downturn. 

Financiers and insurers

The KPMG 2019 report on the mortgage market reports the big 4 banks as holding 81% of the total mortgage market. As CBA is the nation’s largest mortgage holder, it will be the most exposed to a fall in house prices.

However, long-suffering investors in Westpac Banking Corp (ASX: WBC), of which I am one, will also see a hit to revenues. The company launched a $2,000 rebate last year. In January, Canstar reported that Westpac had deliberately positioned itself in the lowest priced 10 loans in the market in all fixed investment loan categories. In any other year, this would have been a canny loss-leading strategy. Alas, 2020 is not any other year.

Foolish takeaway

It is very easy to get wrapped up in the moment. However, I believe all of the companies mentioned here are good companies with good management teams in place. They are likely to see lower share prices in the near term until the actual scale of any fall in house prices is known.

This may be a good time to “buy the dip” as they say. Only you may need to be patient before the turnaround comes. 

More reading

• This is the latest ASX 200 stock to unveil double digit profit growth
• The newspaper killers: 3 ASX 200 online classifieds shares dominating the market
• NAB is going to question borrowers with loan holidays
• Forget term deposits and buy these top ASX dividend shares
• Why this overlooked ASX 200 stock just got upgraded by 3 leading brokers to “buy”

Motley Fool contributor Daryl Mather owns shares of Westpac Banking. The Motley Fool Australia has recommended REA Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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In my opinion, a vaccine probably won’t be a quick fix for the S&P/ASX 200 Index (ASX:XJO) or any share market across the world.

On the healthcare side of things it’s very promising that American biotechnology company Moderna has seen promising initial phase 1 data in its participants. My colleague James Mickleboro covered the news here.

But there are two reasons why I don’t think investors should get too excited yet. (I readily admit I’m not an expert on vaccines at all though.)

The first is that the vaccine itself is still going to take time to go through the R&D process even if this is the fix for the situation. It may not prove to be the dream fix for the situation people are hoping. The company is aiming to start a phase 3 trial in July, so we’re still months away from seeing if it can be successful for the population. There’s going to be a lot more economic damage between now and potential final approval.

The other problem is how long it will take to get to the global population. It takes a lot of time to ramp up production of vaccines to the point where millions of people can receive it. And Moderna is a for-profit business – how much will it charge per dose? Will it be prohibitively expensive for most countries to be able to afford to give it to their citizens?

How much is a vaccine worth to the share market?

International share markets jumped overnight in response to the news. The ASX is also expected to rise by more than 1% today. 

Hopefully the healthcare side of things will be sorted sooner rather than later. However, there’s several issues in economies that may not be fixed quickly. A global recession seems unavoidable at this stage, the damage may already have been done. It just depends on whether it’s a small recession or a large one.

More reading

• 2 millionaire-maker ASX internet growth shares
• ASX 200 expected to rocket higher on Moderna COVID-19 vaccine news
• 5 things to watch on the ASX 200 on Tuesday
• ASX 200 climbs 1% in positive start to the week
• Why this overlooked ASX 200 stock just got upgraded by 3 leading brokers to “buy”

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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