Despite uncertainties remaining at the forefront, rapid digitalization and increased tech dependency in our day-to-day lives continue to bolster the growth prospects of the internet sector. Therefore, let us probe into some buy-rated internet stocks, Tripadvisor, Inc. (TRIP), Despegar.com, Corp. (DESP), and Travelzoo (TZOO), to see if they are worth investing in before April.
The Federal Reserve has made it quite apparent that it intends to get rid of the stubborn inflation and pursues a goal of 2% via escalating interest rate increases. Earlier this month, despite the strong labor market, the Fed enacted a quarter-percentage-point interest rate increase, as opposed to a half-point rate hike, on concerns about the recent banking crisis.
While inflation remains sticky at 6% in February, strong employment and wage trends have kept Americans undeterred when it comes to travel planning. Recently, TRIP released its first Seasonal Travel Index of 2023, providing an outlook for travel patterns and demand over the next three months.
According to this, two-thirds of travelers surveyed are planning trips between March and May 2023, despite rising living costs, versus less than a third between December 2022 and February 2023. This uptrend in travel planning could lead to increased trafficking for internet service providers in terms of bookings for airlines and hotel accommodations, thereby boosting their revenues.
On top of this, the internet industry remains well-poised for growth due to its indispensable role in modern society. Over the past years, internet penetration in the United States has risen steadily, and it is expected to amount to 96% in 2028. Furthermore, the global market for internet services is anticipated to increase at a CAGR of 4.2%, reaching a value of $651.74 billion by 2029.
With these factors in mind, investors might consider buying fundamentally sound internet stocks TRIP, DESP, and TZOO that look well-positioned to benefit from the industry’s tailwinds and resilient travel demand in the upcoming months. These stocks are rated B (Buy) in our proprietary POWR Ratings system.
Tripadvisor, Inc. (TRIP)
TRIP operates as an online travel company, providing travel guidance products and services worldwide. The company operates in three segments: Tripadvisor Core; Viator; and TheFork.
In terms of trailing-12-month TRIP’s gross profit margin of 92.23% is 85.3% higher than the 49.77% industry average. Likewise, its trailing-12-month leverage FCF margin of 21.09% is 179.7% higher than the industry average of 7.54%.
TRIP’s total revenue increased 46.9% year-over-year to $354 million in the fiscal fourth quarter that ended December 31, 2022. Its total adjusted EBITDA increased 48.3% year-over-year to $43 million for the same quarter. Its non-GAAP net income came in at $24 million and $0.16 per share, compared to a net loss of $1 million and $0.01 per share in the year-ago period.
In addition, its total assets grew at a CAGR of 9% over the past three years.
Street expects TRIP’s revenue to increase 12.4% year-over-year to $468.68 million for the fiscal second quarter (ending June 30, 2023). Its EPS is expected to increase 17.4% year-over-year to $0.43 in the same period. It surpassed the revenue estimates in each of the trailing four quarters. The stock has gained 8.3% over the past three months to close the last trading session at $18.69.
TRIP’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Among the 82 stocks in the Internet industry, it is ranked #5. TRIP is rated an A in Quality and B in Growth and Value. To see additional POWR Ratings for Momentum, Stability, and Sentiment for TRIP, click here.
Despegar.com, Corp. (DESP)
DESP is an Argentina-based online travel company that provides a broad suite of travel products, including airline tickets, travel packages, hotel bookings, and other travel products, through its websites and mobile applications. The company operates in two segments, Air; and Packages, Hotels, and Other Travel Products.
Despite a challenging demand environment marked by steep inflation and substantially higher airfares, the company held fast with a Take Rate of 13.8%, above its long-term target, while maintaining a low-cost structure. Looking at the company’s performance, CEO Damian Scokin expects to deliver consolidated revenues in the range of $640 to $700 million and adjusted EBITDA between $80 and $100 million for the fiscal year 2023.
He added, “A recent innovation is DESP’s redesigned mobile app, which is integral to our customer engagement strategy. Reaching an installed base of 23 million customers, our app now offers a significantly streamlined and substantially faster booking process, with 15% fewer information fields to fill and auto-population of 40% of those that remain.” Such innovations should help strengthen its customer base and enhance its offerings.
In terms of trailing-12-month DESP’s gross profit margin of 63.71% is 82% higher than the 35% industry average. Likewise, its trailing-12-month levered FCF margin of 7.58% is 295.9% higher than the industry average of 1.91%.
DESP’s total revenue came in at $145.54 million for the fiscal fourth quarter that ended December 31, 2022, up 16.8% year-over-year. Its gross profit increased 42.1% year-over-year to $100.65 million. Its operating income came in at $3.10 million versus an operating loss of $1.65 million in the year-ago period. Also, its adjusted EBITDA came in at $12.52 million, up 39.1% year-over-year.
Analysts expect DESP’s revenue to increase 20.6% year-over-year to $648.91 million for the fiscal year ending December 2023, while its EPS is expected to be $0.12 in the same period. Moreover, it surpassed the consensus revenue estimates in three of the trailing four quarters.
The stock’s EBITDA and total assets grew at a 54.8% CAGR and a 3.2% CAGR over the past three years, respectively. Also, its revenue has grown at a marginal CAGR over the same period.
DESP’s shares have gained 22.2% over the past three months to close the last trading session at $5.89.
DESP’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. It has a B grade for Growth, Value, and Quality. It is ranked #2 out of 82 stocks in the same industry. Click here to see the other ratings of DESP for Momentum, Stability, and Sentiment.
Travelzoo (TZOO)
TZOO is a global internet media company that offers travel, entertainment, and lifestyle experiences. The company’s segments include Travelzoo North America; Travelzoo Europe; and Jack’s Flight Club.
On February 16, TZOO bagged two golds in the categories of “Best Consumer Photo Journalism” and “Best Consumer Email Newsletter Design” for its weekly Top 20 newsletter at the 2022 Canadian Online Publishing Awards. This reflects the persistent efforts of the team and their excellent performance throughout the year.
In terms of trailing-12-month TZOO’s net income margin of 9.40% is 181.5% higher than the 3.34% industry average. In addition, its trailing-12-month ROTC and ROTA of 28.79% and 9.86% compare with the industry averages of 3.57% and 1.32%, respectively.
For the fourth quarter that ended on December 31, 2022, TZOO’s revenue rose 36.2% from the year-ago value to $18.61 million. Its gross profit increased 47.4% year-over-year to $15.92 million. Its non-GAAP operating income came in at $4.79 million compare to an operating loss of $2.44 million in the year-ago period.
In addition, the company’s attributable net income stood at $2.45 million and $0.20 per share versus a net loss of $3.28 million and $0.27 per share, respectively.
The consensus revenue estimate of $21.71 million for the second quarter (ending June 30, 2023) represents a 22.7% increase year-over-year. The consensus EPS estimate of $0.23 for the next quarter indicates a 182.5% year-over-year growth.
TZOO’s net income and EPS have grown at 16.9% and 15.1% CAGRs over the past three years, respectively, while its total assets grew at a 7.3% CAGR over the same period.
Over the past three months, the stock has gained 27.5% to close the last trading session at $5.24.
TZOO’s solid prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. It has an A grade for Quality and a B for Growth. Within the same industry, it is ranked #3 out of 82 stocks.
Click here to see the additional ratings for TZOO (Value, Momentum, Stability, and Sentiment).
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TRIP shares were trading at $18.92 per share on Wednesday afternoon, up $0.23 (+1.23%). Year-to-date, TRIP has gained 5.23%, versus a 5.02% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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