The internet industry is poised to have a massive impact on the economy in the coming years. The world is already witnessing a revolution in connected experiences with the rollout of 5G. This technology also enables the development of new, high-quality augmented reality, virtual reality, and AI applications.
The industry's growth is being driven by the rising demand for fast internet, consistent network connectivity, and robust internet infrastructure with large bandwidth capacity. The 5G Applications and Services market is projected to grow at a CAGR of 34.10%, reaching $938.60 billion by 2028.
Furthermore, increased government initiatives to expand the use of upgraded satellite internet services should boost the industry’s prospects. The Infrastructure Investment and Jobs Act (Infrastructure Act), which became law a year ago, funded $14.20 billion to modify and extend the Emergency Broadband Benefit Program.
Given the industry's promising growth prospects, adding fundamentally strong internet stocks Yelp Inc. (YELP) and trivago N.V. (TRVG) to your portfolio could be wise. However, Farfetch Limited (FTCH) and ContextLogic Inc. (WISH) might be best avoided now due to their weak financials and bleak growth prospects.
Stocks to Buy:
Yelp Inc. (YELP)
YELP offers advertising products that enable companies of all sizes to promote their goods and boost sales of their services. The company provides various services, including cost-per-click (CPC) search advertising, multi-location ads, business page ads, branded profiles, and Yelp-verified licenses.
For the fiscal 2022 third quarter ended September 30, YELP’s net revenue increased 14.8% year-over-year to $308.89 million, while its other income grew 713% from the year-ago value to $2.69 million. The company’s adjusted EBITDA came in at $73.94 million, up 4.6% year-over-year.
YELP’s trailing-12-month gross profit margin of 91.25% is 81.4% higher than the 50.3% industry average. Its trailing-12-month levered FCF margin of 17.20% is 115.1% higher than the 8% industry average. Moreover, the company’s trailing-12-month ROTA of 3.82% compares to the industry average of 2.32%.
Analysts expect YELP’s EPS and revenue for the next fiscal year (ending December 2023) to increase 32.3% and 8.5% year-over-year to $2.88 and $1.29 billion, respectively. Shares of YELP have gained 3.8% over the past five days to close the last trading session at $27.02.
YELP’s POWR Ratings reflect its strong outlook. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has an A grade for Value and Quality. Within the Internet industry, it ranked #3 of 59 stocks.
To see additional POWR ratings for Stability, Growth, Sentiment, and Momentum for YELP, click here.
trivago N.V. (TRVG)
TRVG, headquartered in Düsseldorf, Germany, operates as a global hotel and lodging search engine. It offers a meta-search engine for locating lodging online from individual hotels, hotel chains, and online travel agencies. The company provides access to its platform via 53 regionally specific websites and applications in 31 different languages.
On October 18, TRVG and AXS, a market pioneer in live sports and entertainment ticketing, announced a global partnership to provide accessible and cost-effective lodging choices with event ticket sales made through AXS. TRVG may benefit significantly by enriching its customers’ experience and night out with the great hotel and booking rates as the exclusive lodging partner to AXS.
TRVG’s trailing-12-month gross profit margin of 97.69% is 94.1% higher than the 50.32% industry average. Its trailing-12-month levered FCF margin of 13.64% is 70.5% higher than the 8% industry average. In addition, its trailing-12-month ROTC of 5.60% compares to the industry average of 4.11%.
For the fiscal 2022 third quarter ended September 30, 2022, TRVG’s total revenue increased 32.5% year-over-year to €183.70 million ($195.72 million), and its net other income grew 63.6% from the year-ago value to €404,000 ($430,420).
As of September 30, 2022, the company’s total current assets stood at €372.41 million ($396.77 million), compared to €310.39 million ($330.69 million) as of December 31, 2021.
The consensus EPS estimate of $0.24 for the current fiscal year (ending December 2022) indicates a 327.7% year-over-year improvement. Likewise, the consensus revenue of $576.43 million for the current year estimate indicates a rise of 39.7% from the previous year. Moreover, the company has an impressive earnings surprise history since it surpassed the consensus EPS estimates in all four trailing quarters.
The stock has gained 11.6% over the month to close the last trading session at $1.40.
TRVG’s POWR Ratings reflect its strong outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
The stock has an A grade for Quality and a B for Growth and Value. Within the Internet industry, it is ranked #2 of 59 stocks.
To see additional POWR ratings for Stability, Momentum, and Sentiment for TRVG, click here.
Stocks to Sell:
Farfetch Limited (FTCH)
FTCH is a global platform for the luxury fashion industry, with its headquarters in London, United Kingdom. It is a hub for over 1,300 shops, brands, and shopping malls across 50 nations. The business operates through three segments: Digital Platform; Brand Platform; and In-Store.
FTCH’s operating loss widened 106.6% year-over-year to $218.48 million in the fiscal 2022 third quarter ended September 30. The company also reported a loss after tax of $274.90 million compared to a profit of $769.13 million in the prior year’s quarter, and its loss per share widened 184% from the year-ago value to $0.71.
As of September 30, 2022, the company’s total current assets stood at $1.27 billion compared to $2.11 billion as of December 31, 2021.
Analysts expect FTCH to report a loss of $0.26 per share for the fourth quarter (ending December 2022). Moreover, the company is expected to report a loss of $1.00 per share for the current fiscal year. The stock has slumped 41.6% over the month and 85.9% over the year to close the last trading session at $4.65.
FTCH’s poor prospects are also apparent in its POWR Ratings. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system.
The stock has an F grade for Growth and a D for Stability, Value, and Sentiment. Within the same industry, it is ranked #56 of 59 stocks.
Beyond what we stated above, we also have FTCH ratings for Quality and Momentum. Get all FTCH ratings here.
ContextLogic Inc. (WISH)
WISH is a mobile electronic commerce firm that offers a discovery-based purchasing platform connecting merchants' products to customers based on user preferences using user-generated material, such as reviews, videos, and images. It also helps retailers with global compliance, payment processing, and user assistance.
For the third quarter of fiscal 2022 (ended September 30), WISH’s revenue declined 66% from the year-ago value to $125 million, and its gross profit decreased 79.6% year-over-year to $34 million. The company’s loss from operations widened 103.2% from the prior year’s quarter to $128 million.
In addition, WISH’s net loss and net loss per share worsened by 93.8% and 80% year-over-year to $124 million and $0.18, respectively.
Analysts expect WISH to report a loss per share of $0.45 for the current fiscal year (ending December 2022). Moreover, the company’s revenue for the same year is expected to decline 71.6% year-over-year to $592.71 million. The stock has plunged 30.6% over the past month and 84.3% over the past year to close the last trading session at $0.47.
WISH’s POWR Ratings are consistent with this bleak outlook. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system.
The stock has an F grade for Stability and a D for Growth and Quality. Within the same industry, it is ranked #54 of 58 stocks.
Click here to access the additional ratings for WISH’s Momentum, Value, and Sentiment.
YELP shares were trading at $27.31 per share on Friday afternoon, up $0.29 (+1.07%). Year-to-date, YELP has declined -24.64%, versus a -18.56% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
2 Internet Stocks to Buy if You Haven't Already and 2 to Sell StockNews.com
