The internet industry is expected to remain healthy as a result of growing digitalization, an increase in the number of smart infrastructures, and government initiatives. So, quality internet stocks Yelp Inc. (YELP), trivago N.V. (TRVG), and Travelzoo (TZOO) could be wise additions to your portfolio now.

The National Telecommunications and Information Administration (NTIA) has authorized $930.02 million to build middle mile high-speed Internet infrastructure throughout 35 states and Puerto Rico. This effort, which is part of President Biden’s Investing in America plan, aims to increase data capacity and resiliency while also connecting unserved regions to the Internet backbone.

Secretary of Commerce Gina Raimondo said, “Access to Internet is no longer a luxury, and thanks to President Biden’s leadership, we are taking action to close the digital divide for everyone in America. The Middle Mile program will invest more than $900 million in the infrastructure needed to connect communities, military bases, and Tribal lands to the Internet, lower the cost of access, and increase bandwidth.”

The industry is growing amid the rising population, urbanization, and smart infrastructures. Moreover, the Internet of Things market is expected to grow at a CAGR of 13% from 2023 to 2026.

Investors’ interest in internet stocks is evident from the First Trust Dow Jones Internet Index Fund (FDN) 35.3% returns over the past six months.

Take a detailed look at the stocks mentioned above:

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 regional business categories. It also offers free and paid advertising products to businesses.

YELP’s forward non-GAAP P/E multiple of 13.15 is 12.2% lower than the industry average of 14.97. Its forward EV/Sales multiple of 1.69 is 8.1% lower than the industry average of 1.84.

YELP’s trailing-12-month ROTA of 3.53% is 138.7% higher than the industry average of 1.48%. Its trailing-12-month levered FCF margin of 19.28% is 162.4% higher than the industry average of 7.35%.

YELP’s net revenue increased 12.9% year-over-year to $312.44 million for the fiscal first quarter that ended March 31, 2023. Its adjusted EBITDA rose 12.3% year-over-year to $54.03 million. Its net cash from operating activities increased 23.9% year-over-year to $74.24 million.

The consensus revenue estimate of $1.30 billion for the year ending December 2023 represents a 9.3% increase year-over-year. Its EPS is expected to grow 128.4% year-over-year to $2.78 for the same period. YELP’s shares have gained 28.8% over the past six months to close the last trading session at $36.47.

YELP’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

YELP has an A grade for Quality and a B for Value. Within the Internet industry, it is ranked #3 out of 57 stocks. Click here for the additional POWR Ratings for Growth, Momentum, Sentiment, Stability, and Quality for YELP.

trivago N.V. (TRVG)

Headquartered in Düsseldorf, Germany, TRVG operates a hotel and accommodation search platform globally. The company offers an online meta-search for hotels and accommodations through online travel agencies, hotel chains, and independent hotels.

TRVG’s forward EV/Sales of 0.31x is 83.2% lower than the industry average of 1.84x. Its forward EV/EBIT of 2.61x is 82.8% lower than the industry average of 15.15x.

TRVG’s trailing-12-month EBIT margin of 11.55% is 35% higher than the 8.56% industry average, while its trailing-12-month gross profit margin of 97.64% is 96.9% higher than the industry average of 49.59%.

During the fiscal first quarter that ended March 31, 2023, TRVG’s total revenue increased 9.2% year-over-year to €111.04 million ($121.09 million). Its operating income stood at €14.76 million ($16.10 million) compared to an operating loss of €4.84 million ($5.28 million) in the previous-year quarter.

Moreover, the company reported an EPS of €0.03 compared to a net loss per share of €0.03 in the previous-year quarter.

Street expects TRVG’s revenue to increase 8.2% year-over-year to $648.94 million for the year ending December 2024. Its EPS is expected to grow 8% year-over-year to $0.23 for the same period. Over the past month, the stock has gained 14.7% to close the last trading session at $1.33.

It’s no surprise that TRVG has an overall A rating, equating to a Strong Buy in our POWR Ratings system. It has an A grade for Quality and a B grade for Growth, Value, and Momentum. It is ranked first in the same industry.

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

Travelzoo (TZOO)

TZOO is a global internet media company that offers travel, entertainment, and lifestyle experiences. The company’s segments include Travelzoo North America; Travelzoo Europe; and Jack’s Flight Club.

On May 11, 2023, TZOO announced the launch of its members-only service Travelzoo META to one million Founding Members, ushering in a new era in travel.

This ground-breaking platform provides users with one-of-a-kind travel experiences in the Metaverse, allowing them to explore and enjoy virtual travel adventures. TZOO META seeks to reimagine the future of travel by exploiting the Metaverse’s possibilities, offering a fresh approach for people to immerse themselves in travel experiences.

TZOO’s forward EV/EBIT of 8.26x is 45.3% lower than the industry average of 15.09x. Its forward EV/EBITDA of 6.28x is 26.7% lower than the industry average of 8.56x.

TZOO’s trailing-12-month ROCE of 236.98% is significantly higher than the 3.29% industry average, while its trailing-12-month ROTC of 34.05% is 789.6% higher than the industry average of 3.83%.

In the fiscal first quarter that ended March 31, 2023, TZOO’s revenues increased 17.1% year-over-year to $21.60 million. The company’s non-GAAP operating income increased 105.4% from the year-ago quarter to $5.54 million.

Also, net income attributable to TZOO increased 55.7% year-over-year to $3.67 million, while its EPS increased 21.1% from the prior-year quarter to $0.23.

Analysts expect TZOO’s revenue to increase 19.4% year-over-year to $84.32 million for the year ending December 2023. Its EPS is expected to grow 55.7% year-over-year to $0.87 for the same period. The stock has gained 65.9% over the past nine months to close the last trading session at $8.13.

TZOO’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.

It is ranked #2 in the same industry. It has an A grade for Sentiment and Quality and a B grade for Growth and Momentum. To see additional TZOO’s ratings for Value and Stability, click here.

What To Do Next?

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YELP shares were unchanged in premarket trading Thursday. Year-to-date, YELP has gained 33.39%, versus a 16.75% rise in the benchmark S&P 500 index during the same period.

About the Author: Rashmi Kumari

Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions. More...

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