The post-pandemic increase in digitization, the growing penetration of the internet, availability of faster internet connectivity through 5G, alongside expanded services provided by internet companies to businesses, are the factors driving the internet industry’s expansion.
Given the long-term growth prospects of the internet industry, it could be wise to buy fundamentally strong internet stocks, Meta Platforms, Inc. (META), Yelp Inc. (YELP), and trivago N.V. (TRVG).
Before diving deeper into the fundamentals of these stocks, let’s discuss why the internet industry is well-positioned for solid growth.
The growth of the internet industry is being driven by advancements in hardware, software, connectivity, and the availability of on-demand digital services. The pandemic accelerated digital transformation and adoption of digital services, underscoring robust connectivity’s significance.
Today’s businesses are leveraging the power of the internet, taking their businesses online and expanding their reach. The e-commerce market’s revenue is expected to grow at a CAGR of 11.2% to reach $5.56 trillion by 2023.
The Biden government’s $65 billion investment to provide high-speed internet connectivity across America under the Infrastructure Investment and Jobs Act (IIJA) is expected to boost the internet industry’s growth. Moreover, faster connectivity through 5G will drive the next phase of growth for the internet industry.
Global 5G connections are expected to reach 1.9 billion by the end of 2023 and 5.9 billion by the end of 2027. Consumers’ interest in Internet stocks is evident from First Trust Dow Jones Internet Index Fund ETF’s (FDN) 36.8% returns year-to-date.
Let’s take a closer look at the fundamentals of the featured stocks.
Meta Platforms, Inc. (META)
META develops products that enable people to connect and share with friends and family through mobile devices, personal computers, virtual reality headsets, and wearables worldwide. It operates in two segments, Family of Apps and Reality Labs.
In terms of the trailing-12-month EBITDA margin, META’s 36.18% is 100.1% higher than the 18.08% industry average. Its 18.27% trailing-12-month net income margin is 522.6% higher than the 2.94% industry average. Likewise, its 79.58% trailing-12-month gross profit margin is 60.5% higher than the industry average of 49.59%.
META’s revenues for the first quarter ended March 31, 2023, increased 2.6% year-over-year to $28.65 billion. The company’s net income came in at $5.71 billion. In addition, its EPS came in at $2.20. Its Facebook daily active users (DAUs) for March rose 4% year-over-year to 2.04 billion.
Analysts expect META’s EPS and revenue for the quarter ended June 30, 2023, to increase 17.3% and 7.7% year-over-year to $2.88 and $31.03 billion, respectively. The stock has gained 144.5% year-to-date to close the last trading session at $294.26.
META’s positive outlook is reflected in its POWR Ratings. It 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 Sentiment and Quality. It is ranked #11 out of 58 stocks in the Internet industry. To see META’s Growth, Value, Momentum, and Stability ratings, click here.
Yelp Inc. (YELP)
YELP operates a platform that connects consumers with local businesses in the United States and internationally. The company’s platform covers various local business categories, including restaurants, shopping, beauty and fitness, health, and other categories, as well as home, local, auto, professional, pets, events, real estate, and financial services.
In terms of the trailing-12-month gross profit margin, YELP’s 91.19% is 83.9% higher than the 49.59% industry average. Its 19.28% trailing-12-month levered FCF margin is 162.4% higher than the 7.35% industry average. Likewise, its 1.19x trailing-12-month asset turnover ratio is 141.2% higher than the industry average of 0.49x.
For the first quarter ended March 31, 2023, YELP’s net revenue increased 12.9% year-over-year to $312.44 million. Its net cash provided by operating activities rose 23.9% year-over-year to $74.24 million. Moreover, its adjusted EBITDA rose 12.3% year-over-year to $54.03 million.
Street expects YELP’s EPS and revenue for the quarter ended June 30, 2023, to increase 69% and 8.9% year-over-year to $0.62 and $325.49 million, respectively. The stock has gained 50.6% year-to-date to close the last trading session at $41.16.
YELP’s POWR Ratings reflect strong prospects. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It is ranked #2 out of 58 stocks in the same industry. It has an A grade for Quality and a B for Value. For other ratings of YELP for Growth, Momentum, Stability, and Sentiment, click here.
trivago N.V. (TRVG)
Headquartered in Düsseldorf, Germany, TRVG and its subsidiaries operate a hotel and accommodation search platform in the United States, Germany, the United Kingdom, and internationally. It offers an online meta-search for hotels and accommodations through online travel agencies, hotel chains, and independent hotels.
On March 31, 2023, TRVG partnered with the Women’s Football Awards 2023, sponsoring the “International Football Player of the Year Award.” The ceremony honors those contributing to the sport’s growth globally and in the UK. This collaboration aligns with trivago’s commitment to diversity and inclusion, boosting brand visibility among millions of fans and travelers.
In terms of the trailing-12-month gross profit margin, TRVG’s 97.64% is 96.9% higher than the 49.59% industry average. Its 15.43% trailing-12-month EBIT margin is 78% higher than the 8.67% industry average. Likewise, its 0.70x trailing-12-month asset turnover ratio is 41.6% higher than the industry average of 0.49x.
TRVG’s total revenue for the first quarter ended March 31, 2023, rose 9.2% year-over-year to €111.04 million ($123.53 million). Its operating income came in at €14.76 million ($16.42 million), compared to an operating loss of €4.84 million ($5.38 million) in the prior-year quarter.
The company’s net income came in at €9.89 million ($11 million), compared to a net loss of €10.70 million ($11.90 million) in the year-ago period. In addition, its EPS came in at €0.03, compared to a loss per share of €0.03 in the prior-year quarter.
TRVG’s revenue for the quarter ended June 30, 2023, is expected to increase 8.2% year-over-year to $159.82 million. Its EPS for the quarter ending December 31, 2023, is expected to increase 12.1% year-over-year to $0.04. Over the past nine months, the stock has gained 25% to close the last trading session at $1.40.
TRVG’s POWR Ratings reflect its solid fundamentals. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has an A grade for Quality and a B for Growth, Value, and Momentum. It is ranked first in the Internet industry. Click here to see the other ratings of TRVG for Stability and Sentiment,.
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META shares were trading at $291.38 per share on Monday afternoon, down $2.88 (-0.98%). Year-to-date, META has gained 142.13%, versus a 19.68% 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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