Whether it be online shopping or social media, secular forces are propelling consumer internet businesses forward. Despite the tailwinds, their demand largely hinges on consumer spending habits, which investors believe are weakening. As a result, the industry has pulled back by 27.8% over the past six months. This drawdown is a far cry from the S&P 500’s 6.2% ascent.
Despite the lackluster result, a few diamonds in the rough can produce earnings growth no matter what, and we started StockStory to help you find them. Taking that into account, here is one internet stock boasting a durable advantage and two we’re swiping left on.
Market Cap: $5.24 billion
Founded by a struggling amateur furniture maker Robert Kalin and his two friends, Etsy (NYSE:ETSY) is one of the world’s largest online marketplaces, focusing on handmade or vintage items.
Why Are We Cautious About ETSY?
Value proposition isn’t resonating strongly as its active buyers averaged 1.4% drops over the last two years
Forecasted revenue decline of 5.7% for the upcoming 12 months implies demand will fall off a cliff
Performance over the past three years shows its incremental sales were less profitable, as its 1.4% annual earnings per share growth trailed its revenue gains
At $54.65 per share, Etsy trades at 10.1x forward EV/EBITDA. Read our free research report to see why you should think twice about including ETSY in your portfolio, it’s free.
Market Cap: $24.28 billion
Originally founded as a part of Microsoft, Expedia (NASDAQ:EXPE) is one of the world’s leading online travel agencies.
Why Do We Think Twice About EXPE?
Annual sales growth of 8.1% over the last three years lagged behind its consumer internet peers as its large revenue base made it difficult to generate incremental demand
Focus on expanding its platform came at the expense of monetization as its average revenue per booking fell by 1.5% annually
Excessive marketing spend signals little organic demand and traction for its platform
Expedia is trading at $198.30 per share, or 6.3x forward EV/EBITDA. If you’re considering EXPE for your portfolio, see our FREE research report to learn more.
Market Cap: $3.76 trillion
Started by Stanford students Larry Page and Sergey Brin in a Menlo Park garage, Alphabet (NASDAQ:GOOGL) is the parent company of the eponymous Google Search engine, Google Cloud Platform, and YouTube.
Why Are We Bullish on GOOGL?
Alphabet’s dominant Google Search sits on the pantheon of the best businesses ever. This is reflected in its robust long-term revenue growth and elite operating margin.
The company’s profit margins have become even higher over time, speaking to its scale advantages and operating efficiency not only in its core Search business but also in Google Cloud Platform and YouTube.
Revenue growth and increasing operating margins are the key ingredients for strong EPS growth. Google has these, and when also factoring in its share repurchases, you can see why EPS has exploded over the long term.
