In today's world of rapid digitization, internet usage has increased in manifolds globally. As of 2022, the estimated number of internet users worldwide was 5.30 billion, up from 4.90 billion in the prior year, equating to around 66% of the global population.
Moreover, the Biden administration’s infrastructure bill aims to achieve all-inclusive internet connectivity. Also, recently the U.S. Department of Agriculture allotted $63 million to bring high-speed internet access to people living and working in rural areas in Illinois, Michigan, Minnesota, and Mississippi. Such investments are expected to bode supremely well for the internet industry.
The global broadband internet services market is expected to grow at a CAGR of 3.8% until 2027. Investors' interest in internet stocks is evident from the SPDR S&P Internet ETF's (XWEB) 9.3% gains over the past month and 14.1% over the past three months.
Given the backdrop, quality internet stock Tripadvisor, Inc. (TRIP) could be an ideal buy in 2023. However, fundamentally weak Snap Inc. (SNAP) might be best avoided.
Stock to Buy:
Tripadvisor, Inc. (TRIP)
TRIP operates as an online travel company, primarily providing travel guidance products and services worldwide. The company operates in three segments: Tripadvisor Core; Viator; and TheFork.
TRIP's forward EV/Sales of 1.74x is 14.1% lower than the industry average of 2.03x. Its trailing-12-month Price/Cash Flow of 7.71x is 2.4% lower than the industry average of 7.91x.
Its trailing-12-month gross profit margin of 92.23% is 85.8% higher than the industry average of 49.63%, while its trailing-12-month levered FCF margin of 21.09% is 138.5% higher than the industry average of 8.84%.
TRIP's total revenue came in at $354 million for the fourth quarter that ended December 31, 2022, up 46.9% year-over-year. Its non-GAAP net income came in at $24 million, compared to a loss of $1 million in the year-ago period. Moreover, its non-GAAP EPS came in at $0.16, compared to a loss per share of $0.01 in the prior-year period.
Analysts expect TRIP's revenue to increase 15% year-over-year to $1.72 billion in the current fiscal year 2023. Its EPS is expected to rise 64% year-over-year to $1.23 for the same period. Also, its EPS is expected to increase by 33.4% per annum for the next five years. The stock has gained marginally over the past month to close the last trading session at $21.89.
TRIP's strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which indicates a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
TRIP has an A grade for Quality and a B for Growth and Value. In the Internet industry, it is ranked #4 out of 61 stocks. Click here for the additional POWR Ratings for Momentum, Stability, and Sentiment for TRIP.
Stock to Avoid:
Snap Inc. (SNAP)
SNAP is a technology company in North America, Europe, and internationally. The company offers Snapchat, a visual messaging application with various tabs.
SNAP's forward EV/Sales of 3.52x is 73.5% higher than the industry average of 2.03x. Its forward Price/Sales of 3.47x is 161.4% higher than the industry average of 1.33x.
Its trailing-12-month negative ROCE and ROTC of 44.88% and 13.24% are lower than the industry averages of 3.57% and 3.76%.
SNAP's net loss came in at $288.46 million for the fourth quarter that ended December 31, 2022, compared to an income of $22.55 million in the previous period. Its adjusted EBITDA came in at $233.28 million, down 28.6% year-over-year, while its non-GAAP EPS decreased 36.4% year-over-year to $0.14.
Street expects SNAP's revenue to decline 5.2% year-over-year to $1.01 billion for the quarter ending March 2023. Over the past year, the stock has lost 73.7% to close the last trading session at $10.36.
SNAP's POWR Ratings reflect its poor prospects. It has an overall D grade, equating to a Sell in our POWR Ratings system.
It has an F grade for Sentiment and a D for Growth, Momentum, and Stability. It is ranked #53 in the same industry. To see SNAP ratings for Value and Quality, click here.
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TRIP shares were trading at $21.89 per share on Monday morning, down $0.68 (-3.01%). Year-to-date, TRIP has gained 21.75%, versus a 6.49% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.
1 Internet Stock to Buy in 2023 and 1 That's Worth Selling StockNews.com
