The internet industry is poised for robust long-term growth due to its innovative digital services, impact on the global population, and enhanced user experiences worldwide. With its growing proliferation and the rise of social commerce, web navigation, and collaboration tools, the sector looks primed for growth.

Notably, the global internet users reached 5.4 billion, up from 5.3 billion in 2022, covering almost 67% of the world’s population last year. The internet has significantly altered our lives, revolutionizing communication, education, work, financial management, entertainment, and shopping. Moreover, the Internet has made it easier for businesses to make their products and services accessible worldwide.

Ever-evolving internet services and advanced search engines revolutionize global access, transforming search, navigation, and digital marketing. The sector’s growth will be driven by 5G and satellite internet and the adoption of technologies like AI and the Internet of Things. The internet services market is predicted to reach $733.79 billion by 2031, with a 4.4% CAGR.

Furthermore, investors’ interest in Internet stocks is evident from the Invesco NASDAQ Internet ETF’s (PNQI) 40.7% returns over the past year.

Given this backdrop, let’s compare two Internet stocks, Alphabet Inc. (GOOGL) and Yelp Inc. (YELP), to understand why YELP is a better buy.

The Case for Alphabet Inc. Stock

Alphabet Inc. (GOOGL) offers various products and platforms in the United States, Europe, the Middle East, Africa, the Asia-Pacific, Canada, and Latin America. It operates through Google Services, Google Cloud, and Other Bets segments.

GOOGL’s stock has gained 7.8% over the past month to close the last trading session at $166.62. In addition, GOOGL has gained 58.2% over the past month.

GOOGL’s EBIT grew at a CAGR of 25% over the past three years. Its revenue grew at a CAGR of 17.4% over the past three years. Moreover, its EBITDA grew at a CAGR of 20.3% during the same period.

In terms of forward non-GAAP PEG, GOOGL is trading at 1.17x, 1.8% lower than the industry average of 1.19x. However, its forward EV/Sales is trading at 5.74x, 208.2% higher than the 1.86x industry average.

In terms of the trailing-12-month EBIT margin, GOOGL’s 30.49% is 258.8% higher than the 8.50% industry average. Likewise, its 11.94% trailing-12-month Capex / Sales is 235% higher than the industry average of 3.56%. Moreover, its 17.31% trailing-12-month levered FCF margin is 110.1% higher than the 8.24% industry average.

For the fiscal first quarter that ended March 31, 2024, GOOGL’s revenues rose 15.4% year-over-year to $80.54 billion. Its operating income came in at $25.47 billion, up 46.3% over the prior year quarter. The company’s net income rose 57.2% year-over-year to $23.66 billion. In addition, its EPS rose 61.5% from the year-ago value to $1.89.

Analysts expect GOOGL’s EPS and revenue for the quarter ending June 30, 2024, to increase 27.7% and 12.5% year-over-year to $1.84 and $83.95 billion, respectively. It surpassed the Street EPS estimates in each of the trailing quarters.

GOOGL’s stock is trading above its 100-day and 200-day moving averages of $145.71 and $139, respectively.

GOOGL’s POWR Ratings reflect its bright prospects. It has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

It has an A grade for Sentiment and a B for Quality. Within the B-rated Internet industry, it is ranked #7 out of 53 stocks. In total, we rate GOOGL on eight different levels. Beyond what we stated above, we also have given GOOGL grades for Growth, Value, Momentum, and Sentiment. Get all the GOOGL ratings here.

The Case for Yelp Inc. Stock

Yelp Inc. (YELP) operates a platform that connects consumers with local businesses internationally. The company’s platform covers various local business categories, including restaurants, shopping, beauty and fitness, health, and other categories, as well as home, local, auto, professional, pets, events, real estate, and financial services.

YELP’s stock has gained 39.5% over the past year to close the last trading session at $40, In addition, the stock has gained 0.2% over the past month.

YELP’s revenue grew at a CAGR of 15.3% over the past three years and 7.2% over the past five years. Its levered FCF grew at a CAGR of 24.7% over the past three years.

In terms of forward non-GAAP P/E, YELP is trading at 12.04x, 10.8% lower than the industry average of 13.50x. In addition, the stock’s forward EV/Sales of 1.64x is 12% lower than the industry average of 1.86x. Moreover, its forward EV/EBITDA of 7.19x is 8.7% lower than the industry average of 7.88x.

In terms of the trailing-12-month levered FCF margin, YELP’s 23.41% is 184.1% higher than the 8.24% industry average. Likewise, its 1.32x trailing-12-month asset turnover ratio is 171.8% higher than the industry average of 0.48x. The stock’s 91.46% trailing-12-month gross profit margin is 85.9% higher than the industry average of 49.20%.

For the fiscal fourth quarter that ended December 31, 2023, YELP’s net revenue and free cash flow stood at $342.38 million and $73.17 million, up 10.8% and 124.5% year-over-year, respectively.

For the same quarter, its net income attributable to common stockholders and net income per share attributable to common stockholders increased 36% and 32.1% over the prior-year quarter to $27.41 million and $0.37, respectively.

Street expects YELP’s EPS for the quarter ending June 30, 2024, to increase 22.2% year-over-year to $0.81. Its fiscal 2024 revenue is expected to grow 7.4% year-over-year to $1.44 billion. It surpassed the consensus EPS estimates in each of the trailing quarters.

YELP’s stock is trading below its 10-day moving average of $40.18 but above its 50-day moving average of $39.05.

YELP’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.

It has an A grade for Quality and a B for Growth and Value. Within the same industry, YELP is ranked #2. To see the additional grades of YELP for Momentum, Stability, and Sentiment, click here.

Should Investors Buy YELP Instead of GOOGL?

In today’s tech-driven world, the internet industry has seamlessly integrated into our daily routines, facilitating digitalization across various sectors. It has revolutionized digital products to meet the demands of the fast-growing digital economy.

By effectively utilizing advanced technologies, companies have made customer services convenient and efficient. Companies like GOOGL and YELP stand to gain as high-speed internet transforms how we interact and experience digital platforms.

GOOGL and YELP have solid financials and robust profitability, but YELP appears to be a better choice than GOOGL due to its solid historical growth metrics and discounted valuation.

Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Internet industry here.

What To Do Next?

43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.

2024 Stock Market Outlook >

GOOGL shares were trading at $165.40 per share on Friday afternoon, down $1.22 (-0.73%). Year-to-date, GOOGL has gained 18.41%, versus a 7.79% rise in the benchmark S&P 500 index during the same period.

About the Author: Abhishek Bhuyan

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. More...

More Resources for the Stocks in this Article