The pervasive impact of the Internet is fundamentally changing the way we interact with our world, revolutionizing the dynamics of work, communication, e-commerce and even our leisure activities. This increasing internet penetration in our daily lives creates a breeding ground for the companies operating in this area.
With that solid background in mind, in this article I’ve highlighted the fundamentals of two Internet stocks, Amazon.com, Inc. (AMZN) and Groupon, Inc. (GRPN), with the aim of determining which could be a better investment candidate.
As of October 2023, the global number was Internet users amounted to 5.30 billion, representing 65.7% of the world’s population. Within this figure, 4.95 billion people, or 61.4% of the world’s population, were engaged as social media users.
Additionally, as a central hub for technological innovation and home to some of the world’s top Internet companies, the United States has seen a continuous increase in its digital population for more than two decades. According to Statista, over 90% of Americans have access to the internetwith a significant portion unable to imagine life without it.
Considering the increasing internet penetration, the global e-commerce market revenue is expected to reach a significant size of $2.93 Trillion in 2023. It is also expected to reach an impressive $4.70 Trillion by 2028, showing a CAGR of 9.9% during the period 2023 to 2028.
Furthermore, in the changing post-pandemic business landscape, the worldwide internet services market is expected to expand significantly to reach $916.50 billion by 2030, growing at an impressive CAGR of 8.2% during the forecast period 2022 to 2030.
Given the favorable industry outlook, AMZN and GRPN should benefit from them. However, AMZN appears to have outperformed GRPN in terms of price performance by gaining 70% year-to-date compared to GRPN’s 8.9% year-to-date gains.
Additionally, in the past month, AMZN shares rose 7.7% to close the last trading session at $142.81, while GRPN plunged 27.2% over the same period to close the last trading session at $9.35.
With all these factors in mind, let’s dig deeper into the basics of the ones presented Internet shares for a better perspective.
Latest financial results
AMZN’s total net sales for the third quarter (ended September 30, 2023) increased 12.6% year-over-year to $143.08 billion, while its operating income rose significantly from the previous year to $11.19 billion. In addition, the company’s net income and earnings per share landed at $9.88 billion and $0.94, a sharp increase compared to the previous year.
On the contrary, GRPN’s revenue decreased by 12.4% year-over-year to $126.47 million in the third quarter ended September 30, 2023. While its gross profit decreased by 11.9% from the previous year’s value to 110.68 million USD. In addition, the company’s net loss amounted to $40.81 million and $1.31 per share.
Previous and expected economic development
AMZN’s revenue grew at a CAGR of 16.8% and 20.2% over the past three and five years, respectively. The consensus revenue estimate of $165.86 billion for the fourth quarter ended December 2023 reflects an 11.2% year-over-year increase. The consensus EPS estimate of $0.76 for the same period indicates a significant year-over-year improvement.
Conversely, GRPN’s revenue declined at a CAGR of 32.2% and 27.9% over the past three and five years, respectively. Analysts expect GRPN’s revenue for the fourth quarter (ending December 2023) to decline 10.8% year-over-year to $132.21 million, while its EPS for the current quarter is expected to remain negative.
Profitability
AMZN is more profitable, with a trailing 12-month net profit margin of 3.62%, compared to GRPN’s negative 26.35%. Additionally, AMZN’s trailing 12-month EBIT margin and leveraged FCF margin are 13.35% and 6.57%, respectively, compared to GRPN’s negative EBIT margin of 9.66% and negative FCF margin of 16.05 %.
POWR rating
AMZN has an overall rating of B, which equates to a buy in our property POWR rating the system. Conversely, GRPN has an overall grade of C, which translates to a neutral. POWR ratings are calculated based on 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight different categories. AMZN’s A sentiment rating is in line with its favorable analyst estimates for the quarter to be reported. On the other hand, GRPN’s F sentiment rating is motivated by its negative analyst estimates for the quarter to be reported.
AMZN also has a B grade for quality, motivated by its higher-than-industry profitability. AMZN’s trailing 12-month cash per share of $4.80 is 98.6% higher than the industry average of $2.42. Additionally, its trailing 12-month turnover ratio of 1.21x is 21.4% higher than the industry average of 1.00x.
Conversely, GRPN is graded C for quality, motivated by its mixed profitability. The stock’s trailing 12-month asset turnover ratio of 0.74x is 25.7% lower than the industry average of 1.00x. However, its trailing 12-month gross profit margin of 87.08% is 143.6% higher than the industry average of 35.74%.
Among the 58 stocks in Internet industry, AMZN is ranked #14, while GRPN is ranked #48.
In addition to what we’ve said above, we’ve also rated both stocks for growth, value, momentum and stability. click here to see AMZN’s ratings. Get all GRPN grades here.
The winner
The increase in demand for online services acts as a crucial driver for the booming internet industry. As consumers increasingly use digital transactions, companies like AMZN and GRPN are strategically positioned to thrive and benefit from the convenience and accessibility their online platforms offer.
However, after examining the fundamentals of both stocks, AMZN emerges as a more compelling investment candidate, supported by its solid financial results, positive growth trajectory and favorable analyst sentiment, especially when considering GRPN’s relatively weaker financials and lower profitability.
Our research shows that the odds of success increase when investing in stocks with an overall rating of Strong Buy. See all top rated stocks in the internet industry here.
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AMZN stock was trading at $144.54 per share on Friday afternoon, up $1.71 (+1.20%). So far this year, AMZN is up 72.07%, compared with a 19.05% gain in the benchmark S&P 500 over the same period.
About the Author: Anushka Mukherjee
Anushka’s ultimate goal is to equip investors with essential knowledge that empowers them to make well-informed investment choices and achieve sustainable long-term financial prosperity. More…
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