The global internet market is poised for rapid growth and expansion as a result of increasing internet penetration. ISPs should benefit from a significant increase in internet usage as they could take advantage of the upsurge in digital activities involving e-commerce, online payments, remote and hybrid working and more.
Given the industry’s robust outlook, investing in fundamentally sound internet stocks may be wise Expedia Group, Inc. (EXP), Fiverr International Ltd. (FVRR) and Despegar.com, Corp. (cleave), which may be more valuable than Amazon.com, Inc. (AMZN).
While AMZN enjoys an industry-leading position, leading to good profitability, the company faces legal challenges. AMZN facing an antitrust lawsuit from the Federal Trade Commission (FTC), one of the largest antitrust lawsuits in a long time, which could affect the company’s operations.
The company’s stretched valuation is also worrying. In terms of forward EV/EBIT, AMZN trades at 47.32x, 270.8% higher than the industry average of 12.76x. Its forward Price/Book multiple of 7.56 is 233.8% higher than the industry average of 2.26.
On the other hand, the outlook for the Internet industry appears optimistic, driven by increased Internet penetration, favorable government initiatives and increasing use of various online services amid growing digitization globally. According to Statista, as of 2023, nearly 92% of individuals in the US had access to the internet, up from 75% in 2012.
Moreover, the global market for wireless internet services is expected to do so grow to USD 921.97 billion by 2027 at a CAGR of 7%.
The Covid-19 pandemic moved large parts of the world online, leading to significant growth in e-commerce, increased use of digital payments, shift to remote or hybrid working, increased use of online entertainment platforms and increased engagement in social media. For example, the global e-commerce market is expected to do so reach $70.90 trillion by 2028which is growing at a CAGR of 27.4%.
With these favorable trends in mind, let’s delve into the basics of the top three Internet stocks, starting with the third pick.
Stock #3: Expedia Group, Inc. (EXP)
EXPE is a global player in online travel and offers various travel services and places to stay through popular brands such as Expedia, Hotels.com, Vrbo and Trivago. It serves vacationers and business travelers with benefits such as loyalty programs and promotional services.
On November 2, 2023, EXPE announced a $5 billion share repurchase authorization in addition to the Company’s outstanding share repurchase authorization. This reflects EXPE’s confidence in its long-term prospects.
On forward non-GAAP PEG, EXPE is trading at 0.38x, 72.9% lower than the industry average of 1.39x. Its forward price/cash flow multiple of 6.54 is 26.1% lower than the industry average of 8.85.
For the third quarter ended September 30, 2023, the company’s revenue and adjusted net income were $3.93 billion and $778 million, an increase of 8.6% and 21.6%, respectively, compared to the prior year.
Gross bookings increased 7.1% from the prior-year quarter to $25.69 billion. Its adjusted EBITDA grew 12.7% year over year to $1.22 billion. Adjusted earnings per share also increased 33.6% year-over-year to $5.41.
For the fourth quarter ending December 2023, analysts expect EXPE’s revenue and EPS to grow 9.4% and 36.7% year-over-year to $2.87 billion and $1.72, respectively. EXPE shares rose 35.5% year-to-date and 32.7% over the past six months to close the most recent trading session at $118.68.
EXPE’s POWR rating reflects this robust outlook. The share has an overall rating of B, which corresponds to a buy in our proprietary rating system. The POWR ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
EXPE is rated A for quality and a B for value. Within Internet industry it is ranked number 19 out of 58 stocks.
click here for EXPE’s additional growth, momentum, stability and sentiment ratings.
Layer #2: Fiverr International Ltd. (FVRR)
FVRR, headquartered in Tel Aviv, Israel, operates an online marketplace. The platform enables sellers to offer services and enables buyers to make purchases. FVRR’s platform covers 600 categories across ten verticals, such as graphic design, digital marketing, writing, translation, video and more.
On November 1, FVRR launched NTRNL™, a new way to source internal talent by allowing employees to create people-centric and personalized profiles. The new platform will increase the company’s operational capabilities and increase its customer satisfaction.
FVRR’s forward non-GAAP P/E of 11.65x is 31.2% lower than the industry average of 16.92x, while its forward EV/EBIT of 10.66x is 28% lower than the industry average of 14.80x.
In the fiscal third quarter ended September 30, 2023, FVRR’s revenue grew 12.1% year-over-year to $92.53 million. In addition, its adjusted EBITDA grew 152.3% year-over-year to $16.53 million.
Its non-GAAP net income and non-GAAP net income per share attributable to common stockholders increased 162.4% and 161.9% from the year-ago quarter to $22.64 million and $0.55, respectively.
Analysts expect FVRR’s fourth quarter (ending December 2023) EPS and revenue to be up 87.7% and 11.2% year-over-year to $0.49 million and $92.41 million, respectively. Additionally, the company topped EPS estimates in all four trailing quarters, which is noteworthy.
The stock has risen marginally over the past five days to close the most recent trading session at $21.85.
FVRR’s sound fundamentals are reflected in its POWR rating. The stock has an overall rating of B, which corresponds to Buy in our proprietary rating system.
It is rated A for growth. Within the same industry, it is ranked #14.
click here to see FVRR’s additional Value, Momentum, Stability, Sentiment and Quality ratings.
Warehouse #1: Despegar.com, Corp. (cleave)
Based in Buenos Aires, Argentina, DESP is an online travel company that provides a range of travel and travel-related products to leisure and business 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.
On forward non-GAAP PEG, DESP trades at 0.83x, 40.6% lower than the industry average of 1.39x. Its forward EV/EBITDA multiple of 4.76 is 48.3% lower than the industry average of 9.20.
For the third quarter ended September 30, DESP’s total revenue increased 22.4% year-over-year to $178.15 million, while its gross profit increased 26.5% year-over-year to $120.55 million. Its operating income was $15.25 million, which is a significant improvement over the previous year’s value. Its adjusted EBITDA rose 105.8% year-over-year to $24.73 million.
The company raised the lower end of its annual guidance. DESP raised its annual revenue expectation from $640 million-$700 million to $670 million-$700 million, while its adjusted EBITDA guidance was raised from $80 million-$100 million to $90 million-$100 million.
Analysts expect DESP’s revenue for the fiscal year ending December 2024 to be up 13.1% year-over-year to $770.78 million. Its EPS for the same year is expected to increase 24.2% year-over-year to $0.56. Additionally, DESP topped consensus earnings estimates in three out of four trailing quarters, which is impressive.
The stock has risen 35.7% year to date to close the last trading session at $6.96. The stock is also up 30.1% over the past six months.
It’s no surprise that DESP has an overall rating of B, which translates to a Buy in our proprietary POWR rating system.
It is rated B for value and quality. Within the internet industry, it is ranked number 8 out of 58 stocks. To view DESP’s growth, momentum, stability and sentiment ratings, click here.
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AMZN stock was trading at $142.71 per share on Monday afternoon, down $0.85 (-0.59%). So far this year, AMZN is up 69.89%, compared with a 16.47% gain in the benchmark S&P 500 over the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More…
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