ContextLogic Inc. (WISH), the e-commerce company behind the Wish shopping app, has been struggling with a challenging operating environment. However, the internet sector displays solid prospects. Therefore, Booking Holdings Inc. (BKNG), Fiverr International Ltd. (FVRR), and Yelp Inc. (YELP) could be better buys instead of WISH.
Due to macroeconomic and competitive pressures, WISH’s topline declined in the last reported quarter. The company’s total revenues declined 42% year-over-year. On top of it, WISH’s profitability looks scanty. Its 12-month trailing net income and EBIT margins of negative 95.50% and negative 91.47% compare to the industry averages of 4.42% and 7.42%, respectively.
Additionally, analysts expect WISH’s revenue for the fiscal year 2023 (ending December 2023) to stand at $286.41 million, showing a 49.8% decrease from the prior year.
Nevertheless, with the rising internet penetration backed by government initiatives and digitalization gaining solid momentum worldwide, the internet industry’s outlook is promising. As per Statista, as of 2023, nearly 92% of individuals in the United States accessed the internet.
Globally, due to the rapid rise in mobile and social media users, the number of people using the internet has risen by 2.1% over the past year to reach 5.19 billion as of July 2023. This equates to about 64.5% of the world’s population.
Further, digital transformation across multiple industries, including retail, education, financial services, telecom and IT, hospitality, and manufacturing, has boosted the demand for wireless broadband services. The global wireless internet services market is expected to grow to $921.97 billion in 2027, expanding at a CAGR of 7%.
The government initiatives to make the internet widely accessible should also propel the internet industry’s growth. For instance, the Broadband Equity, Access, and Deployment (BEAD) Program allocates $42.54 billion from the Bipartisan Infrastructure Law to expand high-speed internet access.
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: Booking Holdings Inc. (BKNG)
BKNG offers global online reservations and related services for travel and restaurants. The company runs Booking.com for accommodation bookings, Rentalcars.com for rental car reservations, and Priceline for online travel reservations and vacation packages.
On June 28, BKNG rolled out its AI Trip Planner to a select group of U.S. travelers through the company’s app. This innovative planner builds upon BKNG’s well-established machine learning models, which regularly recommend travel destinations and accommodations to millions of users.
Furthermore, it integrates aspects of OpenAI’s ChatGPT API to provide a novel conversational experience for travelers as they begin their trip-planning process. The company should benefit from improved user experience.
BKNG’s trailing-12-month gross profit margin of 86% is 142.6% higher than the 35.45% industry average. Its trailing-12-month EBIT margin of 30.05% is 304.8% higher than the industry average of 7.42%. In addition, the stock’s trailing-12-month levered FCF margin of 28.46% is 458.6% higher than the industry average of 5.09%.
For the fiscal second quarter, which ended on June 30, 2023, BKNG’s total revenues increased 27.2% year-over-year to $5.46 billion. Its operating income rose 67.3% from the year-ago value to $1.67 billion.
In addition, the company’s non-GAAP net income and non-GAAP net income applicable to common stockholders per common share amounted to $1.39 billion and $37.62, up 79.3% and 97.2% from the prior-year quarter, respectively. Also, its adjusted EBITDA grew 63.7% from the year-ago value to $1.78 billion.
The consensus revenue estimate of $7.24 billion for the fiscal third quarter (ending September 2023) represents a 19.6% increase year-over-year. Likewise, the consensus EPS estimate of $68.58 for the current quarter indicates a 29.3% year-over-year improvement. Also, the company topped the consensus revenue and EPS estimates in each of the trailing four quarters.
Over the past year, the stock has gained 85.6% to close the last trading session at $3,097.91.
BKNG’s POWR Ratings reflect this robust outlook. The stock has an overall B rating, translating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
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 May 3, FVRR launched Fiverr Enterprise, formerly known as Stoke Talent. As part of its ongoing expansion strategies, the company is extending its solutions to cater to larger brands while enhancing its offerings for existing clients.
Fiverr Enterprise aims to empower businesses with comprehensive control and provide a seamless, all-in-one solution for sourcing, onboarding, managing, and compensating freelance talent. In addition, it simplifies complex tasks such as budget management, tax compliance, legal considerations, and workforce classification and compliance processes.
FVRR’s trailing-12-month gross profit margin of 81.71% is 169.7% higher than the 30.30% industry average. Its trailing-12-month levered FCF margin of 8.18% is 49.6% higher than the industry average of 5.47%. In addition, the stock’s trailing-12-month cash per share of $4.28 is 106.2% higher than the industry average of $2.08.
For the fiscal second quarter, which ended on June 30, 2023, FVRR’s non-GAAP gross profit grew 7.1% year-over-year to $75.26 million. Moreover, its non-GAAP net income and non-GAAP net income per share attributable to ordinary shareholders rose 311.4% and 308.3% from the prior year’s period to $20.04 million and $0.49, respectively.
In addition, its adjusted EBITDA improved 231.5% from the year-ago value to $15.27 million.
Street expects FVRR’s revenue for the fiscal third quarter (ending September 2023) to increase 10.6% year-over-year to $91.25 million. Likewise, FVRR’s EPS for the ongoing quarter is expected to rise 119.8% from the prior year’s period to $0.46. Moreover, the company topped the EPS estimates in all four trailing quarters.
The stock marginally declined intraday to close the last trading session at $24.05.
FVRR’s solid 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 and a B for Quality. Within the same industry, it is ranked #6. Click here to see the additional ratings of FVRR for Value, Momentum, Stability, and Sentiment.
Stock #1: Yelp Inc. (YELP)
YELP connects consumers with local businesses through its platform. The platform spans various local business categories, such as restaurants, shopping, beauty, and health, as well as home, local, auto, professional, pets, events, real estate, and financial services.
YELP’s trailing-12-month gross profit margin of 91.20% is 84.7% higher than the industry average of 49.37%. In addition, the stock’s trailing-12-month ROTA of 4.14% is 168% higher than the industry average of 1.55%. Also, its trailing-12-month levered FCF margin of 22.66% compares to the industry average of 8.40%.
YELP’s net revenue increased 12.8% year-over-year to $337.13 million for the second quarter that ended June 30, 2023. Its income from operations came in at $18.74 million, up 17.1% year-over-year. Also, the company’s adjusted EBITDA rose 24.7% year-over-year to $83.94 million.
Furthermore, the company’s net income and net income per share attributable to common stockholders grew 83.9% and 90.9% year-over-year to $14.73 million and $0.21, respectively.
Analysts expect YELP’s revenue to increase 10.2% year-over-year to $340.52 million for the fiscal third quarter ending September 2023. Its EPS is expected to grow 55.7% year-over-year to $0.79. Also, the company surpassed the consensus revenue estimates in each of the four trailing quarters.
The stock has gained 39.3% over the past six months and 51.9% year-to-date to close the last trading session at $42.11.
YELP’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
The stock has an A grade for Growth and Quality and a B for Value. It has topped the 82-stock Internet industry. In addition to the POWR Ratings stated, one can access YELP’s Momentum, Sentiment, and Stability ratings here.
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BKNG shares were trading at $3,056.30 per share on Tuesday morning, down $41.61 (-1.34%). Year-to-date, BKNG has gained 51.66%, versus a 12.86% 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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