The internet is undeniably an essential tool in today’s globalized world and is used by almost everyone for exchanging information, communication, online shopping, and managing finances. The United States is one of the biggest online markets. As of 2023, approximately 92% of the total U.S. population accessed the internet, up from nearly 75% in 2012.
Moreover, the Internet of Things (IoT), considered an important technology in the modern era, connects the digital and the physical worlds and plays a preeminent role in keeping the internet industry buoyed. The global IoT market size is estimated to register a CAGR of 29.4% from 2022 to 2028 to reach $2.27 trillion by 2028.
Furthermore, the global internet service market is expected to grow at a 4.4% CAGR between 2022 and 2028 to be valued at $644.87 billion.
Given the growth potential of the industry, we think quality internet services stock Shutterstock, Inc. (SSTK) might be a solid pick in 2023. However, Shopify Inc. (SHOP) might be avoided now, given its bleak fundamentals.
Stock to Buy:
Shutterstock, Inc. (SSTK)
SSTK is a technology company that provides quality content and creative workflow solutions internationally. It offers image services consisting of photographs, vectors, and illustrations used in visual communications. SSTK provides services under the Shutterstock, Bigstock, Offset, TurboSquid, and PremiumBeat brands.
On January 30, 2023, SSTK’s board of directors declared a dividend of $0.27 per share of outstanding common stock, an increase of 12.5% over the previous quarterly dividend of $0.24. The dividend is payable on March 16, 2023, to the shareholders. This reflects its shareholder return abilities.
On January 25, SSTK launched a generative AI to its all-in-one creative platform. The text-to-image technology converts prompts into larger-than-life, ethically created visuals ready for licensing.
Paul Hennessy, Chief Executive Officer at SSTK, said, “Shutterstock has developed strategic partnerships over the past two years with key industry players like OpenAI, Meta, and LG AI Research to fuel their generative AI research efforts, and we are now able to uniquely bring responsibly-produced generative AI capabilities to our own customers.”
SSTK’s trailing-12-month gross profit margin of 62.03% is 25% higher than the 49.63% industry average. Its trailing-12-month net income margin of 9.19% is 171.7% higher than the industry average of 3.38%.
SSTK’s revenue has grown at 8.4% and 8.2% CAGR over the past three and five years, respectively. Moreover, its EBIT has grown at a 71.9% CAGR over the past three years.
SSTK’s revenue increased 5.8% year-over-year to $217.73 million in the fiscal fourth quarter that ended December 31, 2022. The company’s adjusted net income was $37.93 million, representing a 31.5% year-over-year increase, while its adjusted net income per share came in at $1.05, up 36.4% year-over-year. Also, its adjusted EBITDA grew 48.8% from the prior-year quarter to $58.31 million.
Analysts expect SSTK’s EPS and revenue to increase 3.8% and 6.2% year-over-year to $1.04 and $211.54 million, respectively, for the fiscal first quarter ending March 2023. Moreover, it surpassed the consensus EPS estimates in three of the trailing four quarters.
Shares of SSTK have gained 21.1% over the past six months to close the last trading session at $78.29. Moreover, it has gained 48% over the past three months.
SSTK’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Sentiment and Quality. SSTK is ranked #3 within the 28-stock Internet – Services industry.
Click here to see the additional POWR Ratings for SSTK (Growth, Value, Momentum, and Stability).
Stock to Avoid:
Shopify Inc. (SHOP)
Headquartered in Ottawa, Canada, SHOP, an e-commerce company, provides a commerce platform and services in Canada, the United States, Europe, the Middle East, Africa, the Asia Pacific, and Latin America. The company's platform enables merchants to display, manage, market, and sell products through various sales channels.
In terms of forward EV/Sales, SHOP is trading at 11.66x, which is 277.6% higher than the 3.09x industry average. The stock’s forward Price/Sales multiple of 12.32 is 315.4% higher than the industry average of 2.97.
SHOP’s trailing-12-month levered FCF margin of 3.53% is 47.7% lower than the 6.75% industry average. Its trailing-12-month net income margin is negative 61.79% compared to the 2.98% industry average.
SHOP’s revenue stood at $1.73 billion for the fiscal fourth quarter that ended December 31, 2022, while its adjusted gross profit came in at $818.84 million. Its adjusted net income declined 47.4% year-over-year to $91 million, and its adjusted net income per share attributable to shareholders came in at $0.07, representing a decline of 50% year-over-year.
SHOP’s EPS for the fiscal year ending December 2023 is expected to decline 59% year-over-year to $0.02. Its revenue is expected to come in at $6.65 billion for the same year.
SHOP has lost 39.9% over the past year to close the last trading session at $44.91. Moreover, it has lost 15.9% intraday.
SHOP’s POWR Ratings reflect its bleak prospects. The stock has an overall D rating, equating to Sell in our POWR Ratings system.
It has a D grade for Value, Stability, and Quality. SHOP is ranked #27 within the same industry.
Click here to access SHOP’s ratings for Growth, Momentum, and Sentiment.
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SSTK shares were unchanged in premarket trading Friday. Year-to-date, SSTK has gained 48.50%, versus a 6.07% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
1 Internet Services Stock to Pick up in 2023 and 1 to Not StockNews.com
