As digital technologies get integrated across different divisions of business enterprises, the usage of internet and related services is expected to increase substantially in the coming years.
Given the potential of the internet services industry, it could be wise to invest in high-quality internet stocks VeriSign, Inc. (VRSN), Wix.com Ltd. (WIX), and Upwork Inc. (UPWK).
Before diving deeper into the fundamentals of these stocks, let’s discuss why the internet industry is well-positioned for growth.
The proliferation of the internet has led to the growth of internet services companies. Internet services companies are benefiting from the widespread usage of the internet. The growth of online shopping, online payments, remote work, etc., drives the demand for internet services.
Furthermore, increased digitization of business operations since the pandemic has boosted the demand. Internet services companies have been expanding their offerings to help enterprises improve and scale their operations.
In addition, the adoption of newer technologies like 5G is expected to fuel the growth of the internet services industry. The global private 5G market is expected to grow at a CAGR of 49.7% to reach $41.80 billion by 2030.
Let’s take a closer look at the fundamentals of the featured stocks.
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 66.53% is significantly higher than the 4.35% industry average. Its 49.49% trailing-12-month levered FCF margin is 571.8% higher than the 7.37% industry average. Likewise, its 0.77x trailing-12-month asset turnover ratio is 27.5% higher than the industry average of 0.61x.
VRSN’s net cash provided by operating activities for the first quarter ended March 31, 2023, increased 25.1% year-over-year to $259 million. Its revenues increased 5% year-over-year to $364.40 million.
The company’s net income rose 13.5% over the prior-year quarter to $178.70 million. In addition, its EPS came in at $1.70, representing an increase of 18.9% year-over-year.
Analysts expect VRSN’s EPS and revenue for the quarter ending June 30, 2023, to increase 14% and 6% year-over-year to $1.76 and $373.09 million, respectively. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 26.2% to close the last trading session at $224.36.
VRSN’s positive outlook is reflected in its POWR Ratings. The stock has an overall rating of B, 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 a B for Stability and Sentiment. It is ranked #7 out of 29 stocks in the Internet – Services industry. To see VRSN’s ratings for Growth, Value, and Momentum, click here.
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 May 24, 2023, WIX announced that it completed a $300 million share repurchase program. The share repurchase program created value for its shareholders.
On May 16, 2023, WIX announced Google Ads with Wix, allowing users to create Google Ads directly within the platform. This feature simplifies the ad creation process, enabling users to drive targeted traffic to their websites and boost sales.
In terms of the trailing-12-month gross profit margin, WIX’s 63.32% is 29.3% higher than the 48.99% industry average. Its 4.85% trailing-12-month Capex/Sales is 112.2% higher than the 2.28% industry average. Likewise, its 0.76x trailing-12-month asset turnover ratio is 25.2% higher than the industry average of 0.61x.
For the first quarter ended March 31, 2023, WIX’s total revenue increased 9.5% year-over-year to $374.08 million. Its Creative Subscriptions revenue increased 9.1% year-over-year to $278.13 million. The company’s non-GAAP gross profit increased 17.7% year-over-year to $249.53 million.
Its non-GAAP operating income came in at $48.52 million, compared to a non-GAAP operating loss of $50.99 million in the year-ago period. In addition, its non-GAAP net income came in at $51.10 million, compared to a non-GAAP net loss of $41.39 million in the prior-year quarter. Also, its non-GAAP EPS came in at $0.91, compared to a non-GAAP loss per share of $0.72 in the year-ago quarter.
Street expects WIX’s revenue for the quarter ending June 30, 2023, to increase 10.9% year-over-year to $382.79 million. Its EPS for the quarter ending September 30, 2023, is expected to increase 647.1% year-over-year to $0.45. It has surpassed the consensus EPS estimates in each of the trailing four quarters.
Over the past year, the stock has gained 32.4% to close the last trading session at $77.44.
WIX’s POWR Ratings reflect strong prospects. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It is ranked #6 out of 29 stocks in the same industry. It has a B grade for Growth and Quality. Click here to see the other ratings of WIX for Value, Momentum, Stability, and Sentiment.
Upwork Inc. (UPWK)
UPWK operates a work marketplace connecting businesses with freelancers and agencies. The company’s work marketplace offers a wide range of talent across various categories, streamlining workflows and simplifying talent sourcing, outreach, and contracting.
Its trailing-12-month gross profit margin of 74.46% is 149.6% higher than the industry average of 29.83%.
UPWK’s total revenue for the first quarter ended March 31, 2023, rose 13.8% year-over-year to $160.86 million. Its marketplace revenue increased 14.4% year-over-year to $148.09 million.
In addition, its managed services revenue rose 7.2% year-over-year to $12.77 million. The company’s non-GAAP gross profit rose 16.5% year-over-year to $120.85 million.
UPWK’s revenue for the quarter ending June 30, 2023, is expected to increase 3.6% year-over-year to $162.56 million. Its EPS for the quarter ending December 31, 2023, is expected to increase 316.2% year-over-year to $0.17. Over the past month, the stock has gained 13.8% to close the last trading session at $9.10.
UPWK’s POWR Ratings reflect its solid prospects. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has a B grade for Value and Quality. It is ranked #8 in the Internet - Services industry. For additional UPWK ratings for Growth, Momentum, Stability, and Sentiment, click here.
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VRSN shares were trading at $221.14 per share on Wednesday afternoon, down $3.22 (-1.44%). Year-to-date, VRSN has gained 7.64%, versus a 12.18% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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