The internet industry thrives due to its transformative impact on work, communication, shopping, and leisure, enabled by its widespread integration into daily life. The Internet has revolutionized online shopping, entertainment platforms, and digital financial services. With increased digitization initiatives across various sectors, the internet industry is expected to play a pivotal role in their growth.

Given this backdrop, it could be wise to add fundamentally strong internet stocks eBay Inc. (EBAY), MercadoLibre, Inc. (MELI), and Netflix, Inc. (NFLX) to one’s watchlist.

Before diving deeper into the fundamentals of these stocks, let’s discuss why the internet industry is well-positioned for growth.

As of January 2024, 5.35 billion people used the internet globally, with 5.04 billion actively participating in social media, representing 62.3% of the global population. The global internet services market is expected to grow substantially, reaching $733.79 billion by 2031, growing at an impressive 4.4% CAGR from 2023 to 2031.

In addition, the rising need for budget-friendly smart wireless devices is expected to propel the expansion of the wireless internet sector. The global wireless internet services market is projected to hit $921.97 billion by 2027, growing at a CAGR of 7%.

The Internet has played a crucial role in the growth of online shopping. Statista forecasts continuous growth in the U.S. e-commerce market, with an estimated total revenue increase of $475.20 billion between 2024 and 2028, reaching a new peak of $1.30 trillion in 2028.

The e-commerce market is expected to be valued at $8.80 trillion in 2024, with projections indicating the market will reach $18.81 trillion by 2029, growing at a CAGR of 15.8% from 2024 to 2029.

The proliferation of the Internet has also made people aware of the advantages of digital financial services. Digital financial services provide users control over their finances, the convenience of making transactions from anywhere, and enable transparency and security, etc. The total transaction value in the digital payments market is forecasted to hit $11.55 trillion in 2024. It is expected to grow at a CAGR of 9.5% to reach a total of $16.62 trillion by 2028.

Meanwhile, the introduction of high-speed internet and advancements in technology has paved the way for video streaming platforms to grow. The Internet is helping video streaming companies to expand into newer geographies and cater to different audiences.

The global video streaming market revenue is expected to grow at a projected CAGR of 21.6% from 2024 to 2030, reaching $508.80 billion by 2030. This growth will be fueled by increasing consumer demand for flexible, on-the-go access to diverse, real-time content and the rising number of video-on-demand users worldwide.

On top of it, the introduction of 5G, with its significantly faster speeds and greater network density, fosters innovation and economic expansion and enhances the consumer experience, thereby contributing to the growth of the internet industry. The global 5G services market is expected to grow at a staggering CAGR of 59.4% from 2023 to 2030 to reach $2.21 trillion.

Investors’ interest in Internet stocks is evident from the Invesco NASDAQ Internet ETF’s (PNQI) 42.1% returns over the past year.

Considering these conducive trends, let’s take a look at the fundamentals of the three above-mentioned Internet stocks.

Stock #3: eBay Inc. (EBAY)

EBAY operates marketplace platforms that connect buyers and sellers in the United States and internationally. The company's marketplace platform includes its online marketplace at eBay.com and the eBay suite of mobile apps. Its platforms enable users to list, buy, and sell various products.

In terms of the trailing-12-month gross profit margin, EBAY’s 72.13% is 101.7% higher than the 35.77% industry average. Its 4.80% trailing-12-month Capex/Sales is 57.1% higher than the 3.06% industry average. However, the stock’s 0.50x trailing-12-month asset turnover ratio is 49.5% lower than the 0.99x industry average.

For the fiscal third quarter that ended September 30, 2023, EBAY’s net revenues increased 5% year-over-year to $2.50 billion. Its gross profit rose 3.6% year-over-year to $1.80 billion. Also, its non-GAAP EPS rose 3% over the prior year’s quarter to $1.03.

Street expects EBAY’s EPS and revenue for the quarter ending March 31, 2024, to increase 1.8% and 0.9% year-over-year to $1.13 and $2.53 billion, respectively. It surpassed the consensus EPS estimate in each of the trailing four quarters. Over the past three months, the stock has gained 4.9% to close the last trading session at $42.62.

EBAY’s POWR Ratings reflect an uncertain outlook. It has an overall rating of C, equating to a Neutral in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

It has a C grade for Value, Stability, and Sentiment. Within the Internet industry, it is ranked #23 out of 51 stocks. To see EBAY’s ratings for Growth, Momentum, and Quality, click here.

Stock #2: MercadoLibre, Inc. (MELI)

Headquartered in Montevideo, Uruguay, MELI operates online commerce platforms in Latin America. It operates in two segments: Mercado Libre Marketplace and Mercado Pago FinTech platform. The company offers an automated online marketplace for buying and selling, as well as a financial technology platform for online transactions and payments.

In terms of the trailing-12-month EBITDA margin, MELI’s 18.50% is 70.8% higher than the 10.83% industry average. Its 26.54% trailing-12-month levered FCF margin is 377.3% higher than the 5.56% industry average. On the other hand, the stock’s 0.94x trailing-12-month asset turnover ratio is 4.8% lower than the 0.99x industry average.

MELI’s total net revenues for the fiscal third quarter that ended September 30, 2023, increased 47.9% year-over-year to $1.99 billion. Its net income and EPS rose 178.3% and 179.7% over the prior-year quarter to $359 million and $7.16, respectively. However, the company’s total current liabilities stood at $10.31 billion, representing an increase of 20.4% compared to $8.56 billion as of December 31, 2022.

For the quarter ended December 31, 2023, MELI’s EPS is expected to increase 116.1% year-over-year to $7.02. Likewise, its revenue for the same quarter is expected to increase 37.6% year-over-year to $4.13 billion. It surpassed the consensus EPS estimates considerably in each of the trailing four quarters. Over the past year, the stock has gained 52.8% to close the last trading session at $1,771.83.

MELI’s bleak prospects are reflected in its POWR Ratings. It has an overall rating of C, equating to a Neutral in our proprietary rating system.

It has a C grade for Stability. It is ranked #18 in the same industry. To see MELI’s Growth, Value, Momentum, Sentiment, and Quality ratings, click here.

Stock #1: Netflix, Inc. (NFLX)

NFLX provides entertainment services. It offers TV series, documentaries, feature films, and mobile games across various genres and languages. The company offers members the ability to receive streaming content through a host of internet-connected devices, including TVs, digital video players, television set-top boxes, and mobile devices.

In terms of the trailing-12-month EBIT margin, NFLX’s 20.62% is 147.5% higher than the 8.33% industry average. Its 57.48% trailing-12-month levered FCF margin is 625.3% higher than the 7.93% industry average. Moreover, the stock’s 26.15% trailing-12-month Return on Common Equity is 523.6% higher than the 4.19% industry average.

For the fourth quarter that ended December 31, 2023, NFLX’s revenue rose 12.5% year-over-year to $8.83 billion. The company’s operating income stood at $1.50 billion, up 172% year-over-year. In addition, its net income and EPS increased significantly year-over-year to $938 million and $2.11, respectively.

Analysts expect NFLX’s EPS and revenue for the quarter ending March 31, 2024, to increase 56.7% and 13.5% year-over-year to $4.51 and $9.27 billion, respectively. It surpassed the consensus EPS estimate in three of the trailing four quarters. Over the past nine months, NFLX’s stock has gained 76.7% to close the last trading session at $593.46.

It’s no surprise that NFLX has an overall rating of B, which translates to a Buy in our proprietary rating system.

It is ranked #17 in the Internet industry. It has a B grade for Quality. Click here to see NFLX’s Growth, Value, Momentum, Stability, and Sentiment ratings.

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NFLX shares were trading at $587.17 per share on Friday afternoon, down $6.29 (-1.06%). Year-to-date, NFLX has gained 20.60%, versus a 5.67% rise in the benchmark S&P 500 index during the same period.

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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