Despite macroeconomic uncertainties, the internet industry is thriving thanks to the accelerating digitalization, expanding smart infrastructure, and ongoing government initiatives.
Considering these factors, it could be wise to buy fundamentally strong internet stock Despegar.com, Corp. (DESP). On the other hand, selling Snap Inc. (SNAP) could be wise, given its poor fundamentals.
Before diving deeper into the fundamentals of these stocks, let’s discuss why the entertainment industry is well-positioned for growth.
According to Statista, in 2023, there were 5.18 billion internet users globally, connecting about two-thirds of the world's population to the web. The United States is one of the world's largest online markets, with over 90% of Americans having internet access and hosting leading internet companies.
Furthermore, wireless technology accelerates the global digital revolution, enhancing productivity and cutting costs across sectors. The global wireless internet services market is projected to reach $921.97 billion by 2027, with a 7% CAGR.
On top of it, the rising use of IoT-connected devices and the demand for ultra-low latency for advanced user experiences are driving the adoption of 5G services, thereby boosting the prospects of the internet sector. The global 5G infrastructure market is expected to reach $348.76 billion by 2030, expanding at a CAGR of 45.2%.
Investors' interest in internet stocks is clear, with the Invesco NASDAQ Internet ETF (PNQI) gaining 49.9% over the past nine months.
Considering these conducive trends, let’s take a look at the fundamentals of the two above-mentioned Internet stocks.
Stock to Sell:
Stock #2: Snap Inc. (SNAP)
SNAP operates as a technology company in North America, Europe, and internationally. The company offers Snapchat, a visual messaging application with various tabs, such as camera, visual messaging, snap map, stories, and spotlight, that enable people to communicate visually through short videos and images.
In terms of the trailing-12-month Capex/Sales, SNAP's 3.78% is 6.1% lower than the 4.02% industry average.
SNAP’s revenue for the second quarter that ended June 30, 2023, decreased 3.9% year-over-year to $1.07 billion. Its operating loss widened marginally year-over-year to $404.34 million. Its adjusted EBITDA loss came in at $38.48 million, compared to an adjusted EBITDA of $7.19 million.
Moreover, the company's non-GAAP net loss widened 11.6% year-over-year to $33 million. And its non-GAAP net loss per share came in at $0.02.
Street expects SNAP’s EPS and revenue for the quarter ended September 30, 2023, to remain negative. Over the past three months, the stock has declined 25.1% to close the last trading session at $8.82.
SNAP’s weak prospects are reflected in its POWR Ratings. The stock has an overall D rating that translates to Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a D grade for Growth, Stability, Sentiment, and Quality. It is ranked #53 in the 57-stock Internet industry. To access SNAP’s grades for Value and Momentum, click here.
Stock to Buy:
Stock #1: Despegar.com, Corp. (DESP)
Based in Buenos Aires, Argentina, DESP is an online travel company, that provides a range of travel and travel-related products to leisure and corporate travelers through its websites and mobile applications in Latin America and the United States. The company operates in two segments: Travel Business and Financial Services Business.
In terms of the trailing-12-month gross profit margin, DESP's 66.26% is 87.1% higher than the 35.41% industry average. Its 12.81% trailing-12-month levered FCF margin is 151.2% higher than the 5.10% industry average. Likewise, its 17.67% trailing-12-month ROTC is 190.8% higher than the industry average of 6.08%.
For the second quarter that ended June 30, DESP’s total revenue increased 23.1% year-over-year to $165.50 million. Its adjusted EBITDA rose 183% year-over-year to $30 million.
Moreover, the company’s net income came in at $28 million, compared to a net loss of $13.20 million in the year-ago quarter. Also, its net income per share stood at $0.25, compared to a loss per share of $0.26 in the previous year's quarter.
Analysts expect DESP’s revenue for the quarter ended September 30, 2023, to increase 15.6% year-over-year to $168.25 million. Its EPS for the fiscal year ending December 31, 2024, is expected to increase 61.4% year-over-year to $0.65. The stock has gained 36.3% year-to-date to close the last trading session at $6.99.
It’s no surprise that DESP has an overall rating of B, which translates to Buy in our proprietary POWR Ratings system.
It has an A grade for Sentiment and a B for Value and Quality. Within the Internet industry, it is ranked #3 out of 57 stocks. To see DESP’s Growth, Momentum, and Stability ratings, click here.
What To Do Next?
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SNAP shares were trading at $8.87 per share on Wednesday afternoon, up $0.05 (+0.57%). Year-to-date, SNAP has declined -0.89%, versus a 14.67% 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.
Snap (SNAP) and Despegar.com (DESP): Are These Internet Stocks a Buy, Hold or Sell? StockNews.com
