The global internet market is poised for rapid growth and expansion as a result of rising internet penetration. Internet service providers should benefit from a significant increase in internet usage as they would be able to take advantage of the boom in digital activities involving e-commerce, online payments, remote and hybrid work, and more.
Given the industry’s robust outlook, it could be wise to invest in fundamentally sound internet stocks Expedia Group, Inc. (EXPE), Fiverr International Ltd. (FVRR) and Despegar.com, Corp. (DESP), which could be better value finds than Amazon.com, Inc. (AMZN).
While AMZN enjoys an industry-leading position, leading to sound profitability, the company faces legal challenges. AMZN faces an antitrust lawsuit from the Federal Trade Commission (FTC), one of the biggest antitrust lawsuits in a long time, which could impact the company’s operations.
Moreover, the company’s stretched valuation is concerning. In terms of forward EV/EBIT, AMZN is trading 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 of the internet industry appears optimistic, driven by increased internet penetration, favorable government initiatives, and rising adoption of various online services amid growing digitalization globally. As per Statista, as of 2023, nearly 92% of individuals in the United States accessed the internet, up from 75% in 2012.
Moreover, the global wireless internet services market is expected to grow to $921.97 billion in 2027 at a CAGR of 7%.
The COVID-19 pandemic moved much of the world online, leading to significant growth in e-commerce, increased use of digital payments, shift to remote or hybrid work, growing usage of online entertainment platforms, and rising social media engagement. For instance, the global e-commerce market is expected to reach $70.90 trillion by 2028, growing at a CAGR of 27.4%.
With these favorable trends in mind, let’s delve into the fundamentals of the three best Internet stocks, beginning with the third choice.
Stock #3: Expedia Group, Inc. (EXPE)
EXPE is a global player in online travel, offering various travel services and places to stay through popular brands like Expedia, Hotels.com, Vrbo, and Trivago. It serves vacationers and business travelers with perks like loyalty programs and advertising services.
On November 2, 2023, EXPE announced a $5 billion stock repurchase authorization in addition to the company’s outstanding share repurchase authorization. This reflects EXPE’s confidence in its long-term prospects.
In terms of 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 amounted to $3.93 billion and $778 million, up 8.6% and 21.6% year-over-year, respectively.
Gross bookings were up 7.1% from the year-ago quarter to $25.69 billion. Its adjusted EBITDA grew 12.7% year-over-year to $1.22 billion. Also, adjusted EPS increased 33.6% from the prior-year period 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. Shares of EXPE rose 35.5% year-to-date and 32.7% over the past six months to close the last trading session at $118.68.
EXPE’s POWR Ratings reflect this robust outlook. The stock has an overall rating of B, equating 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 has an A grade for Quality and a B for Value. Within the Internet industry, it is ranked #19 out of 58 stocks.
Click here for EXPE’s additional Growth, Momentum, Stability, and Sentiment ratings.
Stock #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 in 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 human-centered and personalized profiles. The new platform should boost the company’s operative capability and enhance 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.
During the fiscal third quarter, which ended on September 30, 2023, FVRR’s revenue grew 12.1% year-over-year to $92.53 million. In addition, its adjusted EBITDA grew 152.3% from the prior-year period to $16.53 million.
Its non-GAAP net income and non-GAAP net income per share attributable to ordinary shareholders rose 162.4% and 161.9% from the year-ago quarter to $22.64 million and $0.55, respectively.
Analysts expect FVRR’s EPS and revenue for the fiscal fourth quarter (ending December 2023) to increase 87.7% and 11.2% year-over-year to $0.49 and $92.41 million, respectively. Moreover, the company topped the EPS estimates in all four trailing quarters, which is remarkable.
The stock has gained marginally over the past five days to close the last trading session at $21.85.
FVRR’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system.
It has an A grade for Growth. Within the same industry, it is ranked #14.
Click here to see FVRR’s additional ratings for Value, Momentum, Stability, Sentiment, and Quality.
Stock #1: Despegar.com, Corp. (DESP)
Based in Buenos Aires, Argentina, DESP is an online travel company that provides a range of travel and travel-related products to leisure and corporate 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.
In terms of forward non-GAAP PEG, DESP is trading 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 that ended September 30, DESP’s total revenue increased 22.4% year-over-year to $178.15 million, while its gross profit increased 26.5% from the prior-year quarter to $120.55 million. Its operating income came in at $15.25 million, registering a significant improvement from 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 increase 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 revenue estimates in three out of four trailing quarters, which is impressive.
The stock has gained 35.7% year-to-date to close the last trading session at $6.96. The stock has also gained 30.1% over the past six months.
It’s no surprise that DESP has an overall rating of B, which translates to Buy in our proprietary POWR Ratings system.
It has a B grade for Value and Quality. Within the Internet industry, it is ranked #8 out of 58 stocks. To see DESP’s Growth, Momentum, Stability, and Sentiment ratings, click here.
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AMZN shares were trading at $142.71 per share on Monday afternoon, down $0.85 (-0.59%). Year-to-date, AMZN has gained 69.89%, versus a 16.47% rise in the benchmark S&P 500 index during 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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