The internet sector is experiencing significant growth as digital technology becomes increasingly integrated into all business sectors, leading to a projected substantial increase in widespread internet adoption in the coming years.
Given this backdrop, it could be wise to invest in quality internet service stocks VeriSign, Inc. (VRSN), Wix.com Ltd. (WIX), Perion Network Ltd. (PERI), 8x8, Inc. (EGHT), and Liquidity Services, Inc. (LQDT).
Let’s discuss why the internet – services industry is well-positioned for growth before deep diving into the fundamentals of these stocks.
In April 2023, there were 5.18 billion internet users globally, accounting for 64.6% of the world's population. The profound impact of the internet is evident in its role in connecting people worldwide and facilitating the exchange of information and ideas through innovative means. This demand is primarily driven by the increasing need for virtual communication, remote work tools, e-commerce, and streaming services.
Government initiatives aimed at expanding internet access are improving prospects. The Biden-Harris Administration has allocated $42.45 billion through the Broadband Equity, Access, and Deployment (BEAD) Program to finance planning, infrastructure deployment, and adoption programs to increase high-speed internet access significantly.
Additionally, the growth of the internet industry is driven by the increasing adoption of 5G technology, which offers faster speed and improved connectivity. The expansion of fixed wireless access further enhances industry prospects.
Considering these conducive trends, let’s analyze the fundamental aspects of the five Internet – Services picks, beginning with the fifth choice.
Stock #5: VeriSign, Inc. (VRSN)
VRSN provides domain name registry services and internet infrastructure that enables internet navigation for various recognized domain names. The company ensures the security and, stability, and resiliency of internet infrastructure and services.
In terms of the trailing-12-month EBIT margin, VRSN’s 66.48% is significantly higher than the 4.51% industry average. Its 49.10% trailing-12-month levered FCF margin is 578.6% higher than the 7.24% industry average. Likewise, its 0.85x trailing-12-month asset turnover ratio is 37.5% higher than the industry average of 0.62x.
VRSN’s revenues for the second quarter ended June 30, 2023, increased 5.7% year-over-year to $372 million. The company’s net income rose 11% over the prior-year quarter to $85.70 million. In addition, its EPS came in at $1.79, representing an increase of 16.2% year-over-year.
Analysts expect VRSN’s EPS and revenue for the quarter ending September 30, 2023, to increase 14.4% and 6.2% year-over-year to $1.81 and $379.16 million, respectively. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 14.1% to close the last trading session at $199.72.
VRSN’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Quality and a B for Stability and Sentiment. Within the Internet – Services industry, it is ranked #5 out of 29 stocks. To see VRSN’s ratings for Growth, Value, and Momentum, click here.
Stock #4: Wix.com Ltd. (WIX)
Headquartered in Tel Aviv, Israel, WIX develops and markets a cloud-based platform for creating websites and web applications. Its offerings include a visual development platform for customized website creation. The company also provides vertical-specific applications and complementary services like App Market and owner App for website management.
On September 12, 2023, WIX announced Tap to Pay on Android, expanding its partnership with Stripe to enable U.S.-based merchants using WIX for eCommerce, bookings, and events solutions to accept secure, contactless payments directly from their Android devices without additional hardware. This partnership simplifies in-person commerce and enhances the checkout experience for WIX merchants.
On July 17, 2023, WIX announced the launch of the AI Site Generator and a suite of AI-powered capabilities aimed at streamlining website creation and management for users. These tools include the AI Site Generator, AI Assistant Tool for Managing your Business, AI Page and Section Creator, and Object Eraser, among others.
These AI-powered features enhance website creation, design, and eCommerce capabilities, making it easier for users to build and grow their businesses online.
In terms of the trailing-12-month gross profit margin, WIX’s 64.92% is 33.4% higher than the 48.66% industry average. Its 4.87% trailing-12-month Capex/Sales is 101.4% higher than the 2.42% industry average. Likewise, its 0.81x trailing-12-month asset turnover ratio is 30.4% higher than the industry average of 0.62x.
For the second quarter ended June 30, 2023, WIX’s total revenue increased 13% year-over-year to $389.98 million. Its Creative Subscriptions revenue increased 8.9% year-over-year to $293.93 million. The company’s non-GAAP gross profit increased 23.5% year-over-year to $266.41 million.
Its non-GAAP operating income came in at $68.86 million, compared to a non-GAAP operating loss of $12.93 million in the year-ago period. In addition, its non-GAAP net income came in at $78.09 million, compared to a non-GAAP net loss of $7.83 million in the prior-year quarter. Also, its non-GAAP EPS came in at $1.26, compared to a non-GAAP loss per share of $0.14 in the year-ago quarter.
For the quarter ending September 30, 2023, WIX’s EPS is expected to increase significantly year-over-year to $0.71. Its revenue for the same quarter is expected to increase 12.7% year-over-year to $389.72 million. It surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 28.5% to close the last trading session at $94.70.
It’s no surprise that WIX has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has an A grade for Growth and a B for Sentiment and Quality. Within the same industry, it is ranked #4. In total, we rate WIX on eight different levels. Beyond what we stated above, we also have given WIX grades for Value, Momentum, and Stability. Get all the WIX ratings here.
Stock #3: Perion Network Ltd. (PERI)
Headquartered in Holon, Israel, PERI provides digital advertising solutions to brands, agencies, and publishers in North America, Europe, and internationally. It provides Wildfire, a content monetization platform; search monetization solutions, including website monetization, search mediation, and app monetization; and cross-channel digital advertising software as a service platform.
On September 6, 2023, PERI announced that its AI-based technology, SORT, won the 'Best Cookieless Identification Technology' category at the 2023 Digiday Technology Awards. SORT was recognized for its role in a successful digital campaign for Mercedes-Benz USA, achieving high privacy standards and a 70% increase in brand interactions.
In terms of the trailing-12-month EBIT margin, PERI’s 18.20% is 114.1% higher than the 8.50% industry average. Likewise, its 15.82% trailing-12-month net income margin is 283.2% higher than the industry average of 4.13%. Furthermore, the stock’s 18.43% trailing-12-month levered FCF margin is 116.8% higher than the industry average of 8.50%.
PERI’s total revenues for the second quarter ended June 30, 2023, increased 21.7% year-over-year to $178.50 million. Its non-GAAP net income increased 71.8% year-over-year to $42.10 million. Its adjusted EBITDA rose 44.6% year-over-year to $41.2 million. Also, its non-GAAP EPS came in at $0.84, representing an increase of 64.7% year-over-year.
Street expects PERI’s EPS and revenue for the quarter ending September 30, 2023, to increase 18.9% and 16.2% year-over-year to $0.63 and $184.31 million, respectively. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 43.1% to close the last trading session at $30.51.
PERI’s positive outlook is reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It has a B grade for Value and Quality. It is ranked #3 in the Internet – Services industry. To see PERI’s Growth, Momentum, Stability, and Sentiment ratings, click here.
Stock #2: 8x8, Inc. (EGHT)
EGHT provides voice, video, chat, contact center, and enterprise-class application programmable interface (API) Software-as-a-Service solutions for small and mid-size businesses, mid-market and larger enterprises, government agencies, and other organizations worldwide.
On September 5, 2023, EGHT announced the 8x8 Omni Shield solution, a proactive SMS fraud prevention communication API within its CPaaS portfolio. This helps enterprises safeguard customers from fraudulent SMS activity by offering comprehensive monitoring, real-time analysis, and automatic detection of fraudulent numbers, enhancing customer experience and reducing messaging expenses.
Stephen Hamill, General Manager, CPaaS at EGHT said, "The impact of SMS fraud, and the toll it takes on both customer experiences and a brand’s reputation, can be astronomical, not to mention incredibly costly. To meet the needs of our customers, we are constantly evolving our 8x8 CPaaS portfolio as we evaluate customer pain points and develop solutions that will deliver substantial business value,"
On August 30, 2023, EGHT announced the availability of voice conversational AI in the 8x8 Intelligent Customer Assistant. This enhances its AI self-service capabilities for businesses, offering streamlined workflows, complete customer context, rapid deployment, rich insights, and integration options, all within the 8x8 XCaaS platform.
In terms of the trailing-12-month gross profit margin, EGHT’s 68.97% is 41.8% higher than the 48.66% industry average. Likewise, its 0.86x asset turnover ratio is 39.2% higher than the 0.62x industry average. Additionally, the stock’s 14.52% trailing-12-month levered FCF margin is 100.6% higher than the industry average of 7.24%.
For the fiscal first quarter ended June 30, 2023, EGHT’s total revenue came in at $183.29 million. Its non-GAAP operating profit increased 160.8% year-over-year to $26.43 million. The company’s non-GAAP net income increased 34.2% year-over-year to $15.52 million.
In addition, its adjusted EBITDA rose 79.2% year-over-year to $33.84 million. Also, its net income per share came in at $0.13, representing an increase of 44.4% from the previous-year quarter.
Analysts expect EGHT’s EPS for the quarter ending September 30, 2023, to increase 71.2% year-over-year to $0.09. Its revenue for the quarter ending December 31, 2023, is expected to increase 0.2% year-over-year to $184.68 million. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past month, the stock has declined 27.4% to close the last trading session at $2.54.
EGHT’s strong prospects are reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It has an A grade for Value and a B for Growth, and Quality. It is ranked #2 in the same industry. To see EGHT’s Momentum, Stability, and Sentiment ratings, click here.
Stock #1: Liquidity Services, Inc. (LQDT)
LQDT provides e-commerce marketplaces, self-directed auction listing tools, and value-added services in the United States and internationally. It operates through four segments: GovDeals, Retail Supply Chain Group (RSCG), Capital Assets Group (CAG), and Machinio.
On August 14, 2023, LQDT's GovDeals announced that it has completed $4 billion in cumulative auction sales, highlighting its commitment to sustainable business practices and transparent surplus sales. This milestone reflects its growth over two decades, connecting buyers and sellers of surplus assets in North America.
On September 16, 2023, LQDT announced the auction of over 150 unused energy surplus assets in Alberta, Canada for a prominent oil and gas industry partner. These assets are available for bidding on AllSurplus.com until 6:00 pm EDT on September 20, 2023.
Elizabeth Maxted, General Manager of Capital Assets Group at LQDT, North America, said, “The AllSurplus marketplace continues to power the circular economy and help shorten procurement cycle times, reduce capex spending, and extend life of materials.”
In terms of the trailing-12-month gross profit margin, LQDT's 54.45% is 80.8% higher than the 30.11% industry average. Likewise, its 7.44% net income margin is 20.1% higher than the 6.19% industry average. Additionally, the stock’s 8.14% trailing-12-month Return on Total Assets is 61.3% higher than the industry average of 5.05%.
LQDT's total revenue for the third quarter ended June 30, 2023, increased 15.6% year-over-year to $80.77 million. Its non-GAAP net income 24.8% year-over-year to $8.81 million. The company’s adjusted EBITDA rose 12.4% year-over-year to $13.33 million.
In addition, its non-GAAP EPS came in at $0.28, representing an increase of 33.3% year-over-year.
Street expects LQDT's EPS and revenue for the quarter ending September 30, 2023, to increase 26.3% and 10% year-over-year to $0.24 and $82.74 million, respectively. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past six months, the stock has gained 39% to close the last trading session at $17.95.
LQDT's POWR Ratings reflect solid prospects. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It is ranked first in the Internet – Services industry. It has an A grade for Quality and a B for Sentiment. Click here to see LQDT's Growth, Value, Momentum, and Stability ratings.
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VRSN shares were trading at $200.76 per share on Tuesday afternoon, up $1.04 (+0.52%). Year-to-date, VRSN has declined -2.28%, versus a 16.17% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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