The internet industry is expected to grow in the face of rapid digitization. So, investors looking for quality internet stocks can consider buying Shutterstock, Inc. (SSTK) and Liquidity Services, Inc. (LQDT). However, I think it could be wise to wait for a better entry point in Shopify Inc. (SHOP).
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.
The global wireless internet services market is expected to grow at a 7% CAGR until 2027 to reach $921.97 billion. Government initiatives are fuelling market expansion for wireless internet services, while technology providers and specialists are developing creative solutions for urban infrastructure development in diverse regions.
Investors’ interest in internet stocks is evident from the First Trust Dow Jones Internet Index Fund’s (FDN) 25.6% returns over the past six months.
Let’s delve deeper into the fundamentals of the featured stocks.
Stock to Hold:
Shopify Inc. (SHOP)
Headquartered in Ottawa, Canada, SHOP, an e-commerce company, provides a commerce platform and services in Canada, the United States, Europe, the Middle East, Africa, the Asia Pacific, and Latin America. The company’s platform enables merchants to display, manage, market, and sell products through various sales channels.
SHOP’s forward non-GAAP PEG multiple of 1.27 is 34.7% lower than the industry average of 1.94, while its forward EV/Sales multiple of 11.96 is 299.5% higher than the industry average of 2.99.
For the fiscal first quarter that ended March 31, 2023, SHOP’s revenues increased 25.2% year-over-year to $1.51 billion, while its gross profit came in at $717 million, up 12.4% from the prior-year quarter.
However, its total operating expenses increased 23.6% from the prior-year quarter to $910 million, while loss from operations stood at $193 million, up 96.9% year-over-year.
The stock has gained 120.4% over the past nine months to close the last trading session at $65.57.
SHOP’s POWR Ratings reflect uncertainty. The stock has an overall rating of C, equating to a Neutral in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
SHOP also has a C grade for Sentiment, Momentum, Growth, and Quality. It is ranked #21 out of 29 stocks in the Internet - Services industry. Click here for the additional POWR Ratings for Stability and Value for SHOP.
Stocks to Buy:
Shutterstock, Inc. (SSTK)
SSTK is a technology company that offers top-notch content and innovative workflow solutions. Its image services include photos, vectors, and illustrations. It also provides footage and music services featuring tracks and sound effects. The company caters to corporate professionals, media companies, and individual creators.
On July 11, 2023, SSTK, a major worldwide creative platform that provides transformative brands, digital media, and marketing companies with high-quality content and full-service creative workflow solutions, announced today the expansion of its relationship with OpenAI, a pioneer in artificial intelligence.
SSTK’s forward non-GAAP P/E multiple of 12.99 is 17.1% lower than the industry average of 15.66. Its forward EV/EBITDA multiple of 8.1 is 2.8% lower than the industry average of 8.37.
SSTK’s trailing-12-month gross profit margin of 61.73% is 24.5% higher than the 49.59% industry average. Its trailing-12-month EBITDA margin of 19.47% is 7.7% higher than the 18.08% industry average.
For the fiscal first quarter that ended March 31, 2023, SSTK’s revenue increased 8.1% year-over-year to $215.28 million. Its adjusted EBITDA grew 27.3% year-over-year to $69.76 million. Moreover, the company’s adjusted net income rose 26.8% from the year-ago value to $47.13 million, while its adjusted EPS grew 29% year-over-year to $1.29.
Street expects SSTK’s revenue to increase 3% year-over-year to $852.42 million for the year ending December 2023. Its EPS is expected to grow 5.7% year-over-year to $4.09 for the same period. It surpassed EPS estimates in three of four trailing quarters. Over the past nine months, the stock has gained 10.9% to close the last trading session at $53.12.
It’s no surprise that SSTK has an overall B rating, equating to a Buy in our POWR Ratings system. It has a B grade for Value, Growth, and Quality. It is ranked #2 in the same industry.
Beyond what is stated above, we’ve also rated SSTK for Stability, Sentiment, and Momentum. Get all SSTK ratings here.
Liquidity Services, Inc. (LQDT)
LQDT provides e-commerce marketplaces, self-directed auction listing tools, and value-added services in the United States and internationally. It operates through four segments: GovDeals; Retail Supply Chain Group (RSCG); Capital Assets Group (CAG); and Machinio.
LQDT’s forward EV/Sales multiple of 1.35 is 23.5% lower than the industry average of 1.76. Its forward EV/EBITDA multiple of 10.01 is 9.4% lower than the industry average of 11.01.
LQDT’s trailing-12-month gross profit margin of 54.88% is 84% higher than the 29.83% industry average. Its trailing-12-month net income margin of 11.03% is 74.8% higher than the industry average of 6.31%.
LQDT’s revenue increased 19.3% year-over-year to $81.45 million in the fiscal second quarter that ended March 31, 2023. The company’s non-GAAP adjusted net income was $6.41 million, representing a 10.4% year-over-year increase.
Its adjusted non-GAAP net income per share came in at $0.20, up 17.6% year-over-year. Also, its non-GAAP adjusted EBITDA grew 7.7% from the prior-year quarter to $9.93 million.
The consensus revenue estimate of $311.41 million for the year ending September 2023 represents an 11.2% increase year-over-year. Its EPS is expected to grow 20.6% year-over-year to $0.88 for the same period. LQDT’s shares have gained 21.1% over the past three months to close the last trading session at $16.60.
LQDT’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
It is ranked first in the same industry. It has an A grade for Quality and a B for Stability and Sentiment. To see additional LQDT ratings for Value, Growth, and Momentum, click here.
What To Do Next?
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SHOP shares were trading at $65.80 per share on Monday morning, up $0.23 (+0.35%). Year-to-date, SHOP has gained 89.57%, versus a 19.69% 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.
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