Is Domino’s Pizza a Tech Play for Investors?

Earlier this week, shares of Domino’s Pizza Inc. (NYSE:DPZ) surged almost 16 percent after reporting impressive fourth quarter results.  Net income for the pizza chain increased 28 percent to $30.9 million, compared to $24.2 million a year earlier.  Domino’s has now topped analyst estimates for the last four quarters.  The company’s willingness to embrace criticism and technology has proved to be a winning recipe.

After receiving glaring feedback about its pizza tasting like cardboard, Domino’s announced in late 2009 it would be changing its recipe to improve quality.  The move worked as investors and customers welcomed the transformation.  Shares of Domino’s jumped 90 percent the following year, and 112 percent in 2011.  Furthermore, Domino’s has made it easier than ever to become a customer.  “At the end of the day we’re giving customers a much better experience and they’re coming back.  They’re buying more often and we’re retaining more customers,” explained chief executive Patrick Doyle.

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Domino’s has been able to reduce labor costs by allowing customers to place orders on its website.  The company also offers a free app that allows customers to use their Apple (NASDAQ:AAPL) iPhone, iPad or iPod Touch to place an order for delivery or carryout.  The technology has affected business in a positive way.  Doyle explains, “About a third of total business, U.S. and globally is digital.  Our mobile business is now six percent.  We’re really happy how technology plays into both the top line and costs.”  Earlier this week, Domino’s even launched a new Android (NASDAQ:GOOG) app, and is offering a free smartphone to customers that sign up for a new 2-year service plan on select models from Sprint (NYSE:S), Verizon (NYSE:VZ) and T-Mobile.

Since no one likes to be in the dark about their pizza delivery, Domino’s has an online tracking feature that keeps customers up-to-date on their order, from the time its placed to the second it leaves the store.  Customers may also interact with Domino’s through social media.  “We now have 5.5 million Facebook fans, we’re up 400 percent on both Facebook and Twitter in terms of likes and followers.  It’s a more efficient way to market, its a way to have one on one communication with our customers.  With technology, we can move customers from straight from a conversation to an order,” Doyle said in a recent interview.  In comparison, competitor Papa John’s (NASDAQ:PZZA) has about 2.2 million Facebook fans, while Pizza Hut (NYSE:YUM) has about 6.3 million fans.

Although Domino’s is not your traditional play on smartphones and social media, the new technology is a significant part of Domino’s business plan.  Analysts appear increasingly optimistic about the company’s results for the next quarter. The average estimate for the first quarter of the next fiscal year has moved up from 48 cents a share to 49 cents over the last thirty days. At $1.66 per share, the average estimate for the fiscal year has risen from $1.65 sixty days ago.

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To contact the reporter on this story: Eric McWhinnie at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com

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