The internet industry should thrive amid the worldwide digitization spree. Moreover, initiatives like the Department of Commerce’s National Telecommunications and Information Administration’s (NTIA) grant program, Connecting Minority Communities Pilot Program (CMC) aimed at providing internet access to minority students and communities, should drive growth for the industry.
The program is part of the Biden-Harris Administration’s Internet for All effort, which aims to provide affordable, dependable high-speed Internet access to all Americans.
According to DataReportal, 5.16 billion people worldwide were using the internet at the start of 2023, which accounts for 64.4% of the world’s total population. According to current trends, two-thirds of the world’s population should be online by the end of this year. Furthermore, the global broadband internet services market is expected to grow to $470.49 billion in 2027 at a CAGR of 3.8%.
Given the industry’s growth potential, investors could consider buying quality internet stocks, Data Storage Corporation (DTST) and Tripadvisor, Inc. (TRIP). However, Snap Inc. (SNAP) might be best avoided now, considering its weak fundamentals.
Stocks to Buy:
Data Storage Corporation (DTST)
DTST provides multi-cloud information technology solutions in the United States. The company offers data protection and disaster recovery solutions, high availability, data vaulting, DRaaS, IaaS, message logic, standby server, support, maintenance, and internet solutions.
Its forward Price/Sales of 0.54x is 81.6% lower than the industry average of 2.95x, while its forward EV/Sales multiple of 0.14 is 95.1% lower than the industry average of 2.90.
DTST’s asset turnover ratio of 0.87x is 40.6% higher than the industry average of 0.62x.
DTST’s sales came in at $4.42 million for the third quarter that ended September 30, 2022, up 14.5% year-over-year. Its gross profit came in at $1.85 million, up 20.1% year-over-year. Its adjusted EBITDA rose 54.7% from its prior-year quarter to $162.39 thousand.
Also, its total current liabilities came in at $2.85 million as of September 30, 2022, compared to $2.97 billion as of December 31, 2021.
Analysts expect DTST’s EPS to increase 113.6% year-over-year to $0.03 in 2023. It surpassed EPS estimates in three out of four trailing quarters. Over the past month, the stock has gained 16.2% to close the last trading session at $1.86.
DTST’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
DTST has an A grade for Sentiment and a B for Value and Quality. Within the Internet industry, it is ranked #6 out of 66 stocks. Click here to access the additional POWR Ratings for DTST (Stability, Momentum, and Stability).
Tripadvisor, Inc. (TRIP)
TRIP operates as an online travel company in two segments, Hotels, Media & Platforms; and Experiences & Dining. Also, the company operates TripAdvisor-branded websites, including tripadvisor.com in the U.S., and localized versions of the website in 40 markets and 20 languages.
TRIP’s trailing-12-month gross profit margin of 92.39% is 89.1% higher than the industry average of 49.65%, while its trailing-12-month levered FCF margin of 27.80% is 205.7% higher than the industry average of 9.09%.
TRIP’s revenues increased 51.5% year-over-year to $459 million for the third quarter ended September 30, 2022. Its net profit came in at $25 million, up substantially year-over-year. Moreover, its EPS came in at $0.17, up 1600% year-over-year.
Street expects TRIP’s revenue to increase 15.6% year-over-year to $1.71 billion in 2023. Its EPS is expected to increase 103.1% year-over-year to $1.31. Over the past month, the stock has gained 16.9% to close the last trading session at $24.06.
It’s no surprise that TRIP has an overall B rating, equating to a Buy in our POWR Ratings system. It has an A grade for Quality and a B for Growth. It is ranked #5 in the same industry.
Beyond what is stated above, we’ve also rated TRIP for Value, Stability, Momentum, and Sentiment. Get all TRIP ratings here.
Stock to Avoid:
Snap Inc. (SNAP)
SNAP operates as a camera company internationally. The company offers Snapchat, a camera application with various functionalities that enable people to communicate visually through short videos and images.
SNAP’s ROTC of negative 13.24% is lower than the industry average of 3.70%. Also, its ROCE of negative 44.88% compares with the industry average of 3.62%.
Its forward Price/Sales of 3.57x is 170.8% higher than the industry average of 1.32x, while its forward EV/Sales multiple of 3.62 is 79.2% higher than the industry average of 2.02.
SNAP’s operating loss came in at $287.60 million for the fourth quarter that ended December 31, 2022, up significantly year-over-year. Its net loss came in at $288.46 million, compared to a net income of $22.55 million in the prior-year period. Also, its adjusted EBITDA decreased 28.6% year-over-year to $233.28 million.
The consensus revenue estimate of $1.01 billion for the quarter ending March 31, 2023, indicates a 5.3% decline year-over-year. Over the past year, the shares of SNAP have declined 73.8% to close the last trading session at $10.65.
SNAP’s POWR Ratings reflect its poor prospects. It has an overall D rating, equating to a Sell in our proprietary rating system.
It has an F grade for Sentiment and a D for Growth, Stability, and Momentum. It is ranked #53 in the same industry. To see SNAP ratings for Value and Quality, click here.
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DTST shares were unchanged in premarket trading Monday. Year-to-date, DTST has gained 25.68%, versus a 6.70% rise in the benchmark S&P 500 index during the same period.
About the Author: RashmiKumari
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.
2 Hot Internet Stocks to Buy Right Now and 1 to Avoid StockNews.com
