ZipRecruiter, Inc. (ZIP) is an online employment marketplace. The company provides recruiting, job posting, online interviews, candidate screening, application updates and job alerts services.
Similarweb Ltd. (SMWB) is an Israel-based company that provides website traffic solutions through AI (artificial intelligence)-driven data analytics worldwide. The company also offers an investor intelligence solution that allows users to access an end-to-end view of market, sector or company performance to monitor investment opportunities, forecast market performance, and perform due diligence.
The accelerated pace of digital transformation in almost all industries has benefited internet-based platforms among other technology companies amid the pandemic. Investor optimism around internet stocks is evident in Invesco NASDAQ Internet ETF’s (PNQI) 41.8% returns over the past year versus the SPDR S&P 500 Trust ETF’s (SPY) 30.7% gains.
And despite the reopening of major economies worldwide, the demand for internet-based platforms is expected to continue growing because the pandemic has introduced permanent changes in consumer behavior. Indeed, the global internet services market is expected to grow at a 5% CAGR over the next six years to reach $632.40 billion by 2027. So, both ZIP and SMWB, which went public recently, are expected to benefit from the industry tailwinds.
In terms of their past week’s performance, ZIP is a winner with 2.7% in gains versus SMWB’s 1.9% returns. But, which of these stocks is a better pick now? Let’s find out.
ZIP went public via a direct listing at NYSE on May 26, 2021. The resumption of economic activities and the ongoing vaccination drive are expected to keep the U.S. job market healthy. Consequently, ZIP expects its efficient job search engine to generate significant demand from applicants and employers.
On April 12, ZIP launched a new ‘Act Fast!’ alert that helps businesses secure top candidates. ZIP’s ‘Act Fast!’ label on an applicant’s profile helps employers know whether they are being actively recruited by other companies, which spurs employers to reach out to the applicant quickly. Amid falling unemployment rates in the current economic recovery period, ZIP’s new label addition should help employers make their hiring process more efficient.
SMWB began trading on the New York Stock Exchange (NYSE) on May 12, 2021. The company offered 7.5 million ordinary shares and selling shareholder offered 500,000 shares.
Check Point Software Technologies Ltd. (CHKP), a leading provider of cybersecurity solutions, announced a new alliance with SMWB on March 3. With the rising demand for cybersecurity in hybrid working models, the two companies plan to integrate statistical domain trends and security web threats generated by CHKP’s ThreatCloud with SMWB’s digital intelligence solutions.
Recent Financial Results
ZIP’s total revenues for its fiscal first quarter, ended March 31, increased 10.7% year-over-year to $125.37 million. The company’s gross profit came in at $109.41 million, up 10.7% from the prior-year period. Its income from operations is reported to be $16.47 million, compared to a $10.77 million loss in the first quarter of 2020. ZIP’s net income came in at $13.40 million for the quarter, compared to a $11.08 million net loss in the prior-year period. Its EPS was $0.10, compared to a $0.15 loss per share in the year-ago period. As of March 31, 2021, the company had $135.07 million in cash.
For its fiscal 2021 first quarter ended March 31, SMWB’s revenues increased 42.8% year-over-year to $29.1 million. The company’s gross income was $23.13 million, up 49.8% from the prior-year period. However, SMWB’s net loss is reported at $12.11 million for the quarter, which represents a 95.1% year-over-year rise. Its loss per share increased 73.3% year-over-year to $0.78. The company had cash and short-term investments of $60.28 million, as of March 31, 2021.
Past Financial Performance
ZIP’s revenue and EPS declined 2.7% and 720.8%, respectively, over the past year. However, the company’s EBITDA grew 1791.9% over the past year.
In comparison, SMWB’s revenue and EPS grew 32.4% and 19.8%, respectively, over the past year. The company’s EBITDA grew 23.5% over the past year.
ZIP’s trailing-12-month revenue is 4.2 times SMWB’s. ZIP is also more profitable, with a 87.1% gross profit margin versus SMWB’s 78%.
Also, ZIP’s EBITDA margin and net income margin of 22.1% and 25.7%, respectively, compare with SMWB’s negative values.
In terms of trailing-12-month Price/Sales, ZIP is currently trading at 4.29x, 35.8% higher than SMWB, which is currently trading at 3.16x.
While SMWB has an overall C grade, which translates to Neutral in our proprietary POWR Ratings system, ZIP has an overall B grade, which equates to Buy. The POWR Ratings are calculated considering 118 different factors, each weighted to an optimal degree.
In terms of Quality, ZIP has an A grade, which is consistent with its higher-than-industry profitability ratios. The company’s 43.9% trailing-12-month return on total capital is 1086.5% higher than the 3.7% industry average. However, SMWB’s C Quality grade is in sync with its relatively lower levered free cash flow margin.
ZIP has a B grade for Momentum, which reflects its impressive price gains since its listing. The company has gained 2.7% over the past week. However, SMWB’s C grade for Momentum reflects its mixed price performance since its IPO. Over the past week, it has secured 1.9% returns.
Beyond what we’ve stated above, our POWR Ratings system has also rated both ZIP and SMWB for Growth, Value, Stability and Sentiment.
Internet companies are upgrading and innovating their products and solutions to grab a share of the growing market. Both ZIP and SMWB are well-positioned to grow, but high profitability and latest developments we think make ZIP a better buy here.
Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Outsourcing – Staffing Services industry, and here to see the top-rated stocks in the Internet – Services industry.
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ZIP shares were trading at $22.81 per share on Wednesday afternoon, down $0.86 (-3.63%). Year-to-date, ZIP has gained 8.10%, versus a 13.44% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...
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