Over the years, the internet has experienced increased demand due to its widespread applications. Given the augmented demand, investors could look into fundamentally robust internet stocks eBay Inc. (EBAY), CarGurus, Inc. (CARG), and Data Storage Corporation (DTST).
But before delving into the fundamentals of these stocks, let’s collect more information about the drivers electrifying the sector’s demand.
There is a surge in the adoption of satellite internet services. In addition, an increase in government initiatives for adopting satellite broadband communications services positively impacts the satellite internet market growth.
Due to the increased inclination of consumers for satellite internet services, this segment is projected to grow at a CAGR of 20.4 % to reach $18.59 billion by 2030.
Some crucial factors, like the e-commerce sector’s explosive growth, digitization of the healthcare sector, rising online entertainment consumption, and e-governance activities, drive the internet services industry toward the growth trajectory. The U.S. economy accounts for a 29.5% market share in the global internet services market.
With more of the world’s population accessing a steady internet connection and most of the global retail sales online, the e-commerce industry is set to generate a whopping $6.3 trillion globally this year. The e-commerce market is set to expand by 10.4% by the end of this year.
The fast-paced evolution of mobile wireless services to 5G technology has further revamped the demand and application of wireless broadband services. As of January 2023, the number of online users across the United States was 311.3 million, while the nation’s internet penetration rate stood at 91.8% of the total population.
Given the solid footing of the internet industry, let’s discuss the above-mentioned stocks in more detail:
eBay Inc. (EBAY)
EBAY operates marketplace platforms that connect buyers and sellers worldwide. The company’s platform includes its online marketplace at ebay.com and the eBay suite of mobile apps enabling users to list, buy, and sell various products.
On July 11, the company acquired Certilogo, an AI-powered apparel and fashion goods digital IDs and authentication provider. The deal allows the company to offer a ‘Secure by Design’ digital ID technology authentication to their fashion category, expanding opportunities in the circular economy.
Through this acquisition, EBAY would be able to provide brands with secure, connected product solutions that are both flexible and compatible. Further, it solidifies EBAY as a trusted destination to shop for pre-loved apparel and fashion and marks an essential investment in the growing pre-loved fashion category.
On June 5, EBAY, in collaboration with Techstars, announced a new accelerator program: Techstars Future of E-commerce powered by eBay, designed to support startups working on innovative technologies that will help shape the future of e-commerce. This move enables the company to empower innovative startups leveraging groundbreaking technologies to redefine e-commerce.
On July 26, backed by its strong cash flows, EBAY’s board of directors declared a quarterly dividend of $0.25 per share, payable to its shareholders on September 15, 2023. It pays an annual dividend of $1, which translates to a dividend yield of 2.30%, while its four-year average yield is 1.43%. The company’s dividend payouts have grown at a CAGR of 16.1% over the past three years.
In the second quarter (ended June 30, 2023), EBAY’s net revenues increased 4.9% year-over-year to $2.54 billion, while its gross profit grew 3.6% from the year-ago value to $1.82 billion. Non-GAAP net income from continuing operations increased marginally year-over-year to $555 million. Also, its non-GAAP EPS rose 4% from the prior-year quarter to $1.03.
EBAY’s net cash provided by operating activities came in at $601 million, representing a year-over-year improvement of 163.6%. In addition, as of June 30, 2023, its total liabilities and stockholders’ equity of $19.96 billion declined 4.3% from $20.85 billion for the period ended December 31, 2022.
The consensus revenue estimate of $10.14 billion for the fiscal year 2023 (ending December 31) represents a 3.5% increase from the prior-year period. The consensus EPS estimate of $4.18 for the current year indicates a marginal improvement year-over-year. The company has an impressive surprise history, surpassing the EPS and revenue estimates in each of the trailing four quarters.
Moreover, its revenue has grown at a CAGR of 5.5% over the past three years, while its EBIT increased at a marginal CAGR.
The stock’s trailing-12-month EBIT and net income margins of 23.48% and 13.49% are 220.5% and 222.2% higher than the industry averages of 7.33% and 4.19%, respectively. Likewise, its ROCE, ROTC, and ROTA of 25.54%, 10.79%, and 6.72% compare to the 10.57%, 6.05%, and 3.72% industry averages, respectively.
The stock has gained 9.4% over the past nine months and 5% year-to-date to close the last trading session at $43.56.
EBAY’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, translating to 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 B for Growth and Momentum. Among the 82 stocks in the Internet industry, it is ranked #11. To see additional POWR Ratings for Value, Stability, and Sentiment for EBAY, click here.
CarGurus, Inc. (CARG)
CARG operates an online automotive marketplace connecting buyers and sellers of new and used cars through two segments: U.S. Marketplace and Digital Wholesale. Its platform enables consumers to search for new and used car listings from its dealers, as well as sell their cars to dealers and other consumers.
On June 26, CARG announced the release of the CarGurus ChatGPT plugin to help shoppers discover their ideal car match more efficiently. The tool integrates the power of generative Artificial Intelligence (AI) to enhance automotive search, providing shoppers with greater personalization and ease when exploring CarGurus’ extensive listings platform.
With this initiative, the company aims to optimize its operations and serve its customers in a better manner.
On June 15, the company marked a milestone year in collaboration with over 2,250 dealer partners who fueled the success of its Digital Deal solution as one of the company’s fastest-growing offerings.
Launched last year, the digital retail innovation is the fastest-growing innovation, supporting dealer goals for sales velocity by delivering leads up to 5.3x more likely to close at 2x higher customer satisfaction rates.
During the first quarter that ended on March 31, 2023, CARG’s marketplace revenue increased 2.4% year-over-year to $167.13 million, while its total operating expenses declined by 9.2% from the year-ago value to $140.92 million.
The company’s net income came in at $16.13 million and $0.10 per share compared to a net loss of $62.09 million and $0.53 per share in the prior year’s quarter. In addition, CARG’s cash, cash equivalents, and restricted cash improved by 42.7% year-over-year to $471.68 million.
CARG’s revenue and EPS have increased at CAGRs of 33.6% and 48.1% over the past three years. In addition, its total assets have improved at a CAGR of 37.3% over the same period.
The stock’s trailing-12-month ROCE and ROTA of 46.87% and 25.87% are significantly higher than the industry averages of 3.29% and 1.57%, respectively. Likewise, its levered FCF margin and asset turnover ratio of 15.30% and 1.46x compare to the industry average of 7.44% and 0.49x, respectively.
Street expects CARG’s EPS to increase 8.7% year-over-year to $0.23 in the third quarter (ending September 2023), while its revenue is projected to be $238.69 million. For the fiscal year 2024, the revenue and EPS are expected to improve by 12.9% and 15.5% year-over-year to $1.07 billion and $1.12, respectively. Moreover, it surpassed both estimates in three of the trailing four quarters.
CARG’s shares have gained 59% year-to-date and 46.9% over the past nine months to close the last trading session at $22.28.
CARG’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to Buy in our proprietary rating system. It also has an A grade for Quality and a B for Value. Within the same industry, it is ranked #8.
Click here to see the other ratings of CARG for Growth, Momentum, Stability, and Sentiment.
Data Storage Corporation (DTST)
DTST primarily provides multi-cloud information technology solutions in the United States. It offers subscription-based, long-term agreements for disaster recovery solutions, cloud infrastructure, cybersecurity, and voice and data solutions to a range of clients across several industries.
On July 27, DTST secured a multi-year subscription contract with major food distributors in the United States to provide managed disaster-recovery solutions for the client to help recover critical data more quickly and resume normal business operations.
Commenting on this, the company’s CEO, Chuck Piluso, said, “Specifically, with this contract, we have gained a large footprint in this vertical, enhancing our reach within the food industry and providing new growth opportunities. We are proud to be supporting this premier client and look forward to exploring additional solutions for implementation in the future.”
In the same month, the company was awarded a multi-million project with one of the nation’s leading sports and entertainment companies to provide on cloud storage infrastructure. The alliance enables DTST to improve response time to files, file recovery, and storage capacity to support critical aspects of its security infrastructure.
For the first quarter that ended on March 31, 2023, DTST’s sales amounted to $6.88 million, while its net income and EPS came in at $35.06 thousand and $0.01, respectively. During the same period, the company’s total current assets of $15.55 million improved marginally from $15.38 million for the period ended December 31, 2022.
DTST’s trailing-12-month asset turnover ratio of 0.81x is 32.1% higher than the industry average of 0.61x. Also, its trailing-12-month CAPEX/Sales of 2.39% is marginally higher than the industry average of 2.38%.
Analysts expect DTST’s EPS and revenue for the current year (ending December 2023) to amount to $0.08 and $23.90 million, respectively. For the fiscal year 2024, its EPS and revenue are expected to reach $0.17 and $25.50 million, registering increases of 112.5% and 6.7% year-over-year, respectively.
Over the past three years, DTST’s revenue and total assets have grown at CAGRs of 37.1% and 47.1%, respectively.
DTST’s shares have gained 62.1% over the past three months and 90.5% year-to-date to close the last trading session at $2.82.
It’s no surprise that DTST has an overall rating of B, which translates to Buy in our proprietary rating system. It has an A grade for Sentiment and a B for Value and Quality. Out of 82 stocks in the same industry, it is ranked #6.
In addition to the POWR Ratings we’ve stated above, we also have DTST’s ratings for Growth, Momentum, and Stability. Get all DTST ratings here.
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EBAY shares were trading at $43.81 per share on Wednesday afternoon, up $0.25 (+0.57%). Year-to-date, EBAY has gained 6.86%, versus a 18.81% 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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