Increasing demand for smart wireless sensors and smart city solutions for managing resources is expected to drive growth in the internet industry.

Given the industry’s steady growth prospects, investors could consider quality internet stocks Despegar.com, Corp. (DESP), Travelzoo (TZOO), and Yelp Inc. (YELP) for steady gains this month.

The increasing demand for affordable smart wireless sensors is likely to drive the growth of the wireless internet industry. According to a report by ReportLinker, the global wireless internet services market is estimated to reach $921.97 billion by 2027, growing at a 7% CAGR.

In addition, government initiatives aiming at developing infrastructure are driving the growth of the wireless internet services market. With increasing government initiatives and environmental campaigns taking center stage, technology providers and specialists have actively started simulating creative solutions based on technical modules to design and grow urban infrastructure in several regions.

Furthermore, 5G-enabled technologies are pivotal in facilitating the growth of intelligent manufacturing and smart factories, delivering compelling benefits to manufacturers. The emergence of 5G technology represents a major milestone in the internet industry.

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: Despegar.com, Corp. (DESP)

Based in Buenos Aires, Argentina, DESP, an online travel company, 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.

DESP’s trailing-12-month gross profit margin of 66.26% is 87% higher than the industry average of 35.43%, while its trailing-12-month levered FCF margin of 12.81% is 152.3% higher than the industry average of 5.08%.

For the fiscal second quarter ended June 30, 2023, DESP’s total revenue increased 23.1% year-over-year to $165.50 million. The company’s EPS came in at $0.25, compared to negative $0.26 in the previous year’s quarter. In addition, its total adjusted EBITDA increased 183% year-over-year to $30 million.

Analysts expect DESP’s EPS for the year ending December 31, 2023, to come in at $0.60. Its revenue is expected to grow 24.9% year-over-year to $671.90 million for the same year. Also, the company topped the consensus revenue estimates in three of the four trailing quarters, which is impressive.

The stock has gained 71.1% over the past nine months to close the last trading session at $7.87.

DESP’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates 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.

The stock has an A grade for Sentiment and a B in Momentum and Quality. It is ranked #3 out of 60 stocks in the Internet industry.

Click here to see the other ratings of DESP (Growth, Value, and Stability).

Stock #2: Travelzoo (TZOO)

TZOO operates as an Internet media company that engages in the provision of travel, entertainment, and local deals from travel and entertainment companies, and local businesses worldwide.

TZOO’s trailing-12-month gross profit margin of 91.2% is 84.7% higher than the industry average of 49.37%. Its trailing-12-month asset turnover ratio of 1.23x is 154.3% higher than the industry average of 0.48x.

TZOO’s revenues increased 19.4% year-over-year to $21.13 million in the fiscal second quarter that ended June 30, 2023. The company’s non-GAAP operating income increased 57.4% from the year-ago quarter to $4.15 million.

Also, net income attributable to TZOO increased 155.4% year-over-year to $2.63 million, while its net income per share increased 112.5% from the prior-year quarter to $0.17.

The consensus revenue estimate of $82.85 million for the fiscal year December 2023 represents a 17.4% increase year-over-year. Its EPS is expected to grow 43.2% year-over-year to $0.80 for the same year.

TZOO’s shares have gained 37.8% year-to-date to close the last trading session at $6.13.

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

It has an A grade for Quality and a B in Sentiment, Momentum, and Value. Within the same industry, it is ranked #2.

Beyond what is stated above, we’ve also rated TZOO for Growth and Stability. Get all TZOO ratings here.

Stock #1: Yelp Inc. (YELP)

YELP operates a platform that connects consumers with local businesses in the United States and 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 trailing-12-month ROTA of 4.14% is 168% higher than the industry average of 1.55%. Its trailing-12-month levered FCF margin of 22.66% is 183.1% higher than the industry average of 8.01%.

YELP’s net revenue increased 12.8% year-over-year to $337.13 million for the fiscal second quarter that ended June 30, 2023. Its adjusted EBITDA rose 25% year-over-year to $84 million. Its net income and EPS increased 83.9% and 90.9% year-over-year to $14.73 million and $0.21, respectively.

Street expects YELP’s revenue to increase 11.4% year-over-year to $1.33 billion for the year ending December 2023. Its EPS is expected to grow 134.1% year-over-year to $2.85 for the same year. Also, the company topped the consensus revenue estimates in each of the four trailing quarters.

Over the past year, the stock has surged 24% to close the last trading session at $43.98.

It’s no surprise that YELP has an overall rating of A, which equates to Strong Buy in our proprietary rating system.

It has an A grade for Quality and Growth and a B in Value. Within the same industry, it is ranked first.

In addition to the POWR Ratings stated above, one can access YELP’s Momentum, Sentiment, and Stability ratings here.

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YELP shares were trading at $44.08 per share on Tuesday morning, up $0.10 (+0.23%). Year-to-date, YELP has gained 61.23%, versus a 17.61% rise in the benchmark S&P 500 index during the same period.

About the Author: Nidhi Agarwal

Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities. More...

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