Optimism around the tech sector was lifted after the latest report showed signs of inflation cooling down, which raised expectations of slowing the Fed’s aggressive interest rate hikes in the upcoming meeting. The Technology Select Sector SPDR Fund (XLK) is up 13% over the past month and 6.3% over the past five days.
The internet has become one of the most vital tools for communication, information, and entertainment in today’s globalized world. Online usage penetration has gradually increased over the recent past. According to Statista, as of 2022, 91.8% of the total U.S. population accessed the internet. This figure is projected to grow to 95% by 2027.
Furthermore, the Internet Service Market was valued at $385.50 billion in 2021 and is expected to expand at a CAGR of 9.6% by 2031.
Given this backdrop, we think it might be wise to buy internet stocks Yelp Inc. (YELP) and Travelzoo (TZOO) this month. However, Carvana Co. (CVNA) might be avoided now, given its bleak fundamentals.
Stocks to Buy:
Yelp Inc. (YELP)
YELP operates a platform that connects consumers with local businesses in the United States and internationally. The company’s platform covers various regional business categories. It also offers free and paid advertising products to businesses.
YELP’s net revenue increased 14.8% year-over-year to $308.89 million for the third quarter that ended September 30, 2022. Its adjusted EBITDA came in at $73.94 million, up 4.6% year-over-year. Net income per share attributable to common stockholders for the same period came in at $0.13.
YELP expects fourth-quarter net revenue to be in the range of approximately $300-$310 million and in the range of $1.185-$1.195 billion for the full year. The company expects adjusted EBITDA to be in the range of approximately $75-$85 million for the fourth quarter and $265-$275 million for the full year.
For the fiscal first quarter (ending March 2022), EPS is estimated to come at $0.59, up 336.8% year-over-year. Analysts expect YELP’s revenue to increase 10.4% year-over-year to $305.48 million for the same period. The company surpassed revenue estimates in each of the four trailing quarters.
YELP has gained 3.31% over the past six months and 2.2% over the past five days to close its last trading session at $30.56.
YELP’s POWR Ratings reflect a promising outlook. The company has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It also has an A grade for Quality and a B for Value. Within the Internet industry, YELP is ranked #3 of 58 stocks.
To see YELP’s ratings for Growth, Stability, Sentiment, and Momentum, click here.
Travelzoo (TZOO)
TZOO is an internet media company that provides travel, entertainment, and local deals from travel and entertainment companies and local businesses in Asia Pacific, Europe, and North America.
TZOO’s revenues increased 1% year-over-year to $15.85 million in the fiscal third quarter ended September 30. Its gross profit rose 6.5% year-over-year to $13.53 million. Its non-GAAP operating income grew 3.1% year-over-year to $1.11 million. In addition, the company’s net income per share came in at $0.06.
The company expects substantially higher revenue and profitability in the fourth quarter. The company expects travel to return to normal conditions. The company also believes it can keep fixed costs relatively low in the foreseeable future.
The consensus revenue estimate for the fiscal year 2022 (ending December 2022) of $69.59 million represents a 10.1% improvement year-over-year. Analysts expect TZOO’s EPS for the same period to increase 216% year-over-year to $0.48.
TZOO has gained 29% over the past month to close its last trading session at $5.96. It has gained 3.7% intraday.
It’s no surprise that TZOO has an overall B rating, which translates to a Buy in our proprietary rating system.
It also has an A grade for Quality and a B for Growth. Within the same industry, TZOO is ranked #2.
Click here to see TZOO’s ratings for Value, Stability, Sentiment, and Momentum.
Stock to Avoid:
Carvana Co. (CVNA)
CVNA operates an e-commerce platform for buying and selling used cars in the United States. The company’s platform enables consumers to research and identify a vehicle, inspect it, obtain financing and warranty coverage, purchase the vehicle, and schedule delivery or pick-up.
For the fiscal third quarter that ended September 30, CVNA’s gross profit declined 31.4% year-over-year to $359 million. Its adjusted EBITDA stood at negative $200 million for the same period. Net loss per share of Class A common stock increased significantly year-over-year to $2.67.
CVNA expects a sequential reduction in retail units sold and total GPU in the fourth quarter due to the impacts of reduced used vehicle industry demand, increasing benchmark interest rates, and higher used vehicle depreciation rates.
Analysts expect CVNA’s EPS for the fiscal fourth quarter ending December 2022 to decline 129.6% year-over-year to negative $2.34. For the same quarter, revenue is estimated to decline 15.5% year-over-year to $3.17 billion. In addition, CVNA has missed the consensus EPS estimates in all of the trailing four quarters.
The stock has plunged 95.8% year-to-date to close its last trading session at $9.74. The stock has fallen 43.2% over the past month.
CVNA’s POWR Ratings are consistent with its bleak outlook. The company has an overall rating of F, which translates to a Strong Sell in our proprietary rating system.
It also has an F grade for Stability, Sentiment, and Quality and a D for Growth. Within the same industry, CVNA is ranked last.
In addition to the POWR Ratings we’ve stated above, one can see CVNA’s ratings for Value and Momentum here.
YELP shares were trading at $30.98 per share on Tuesday afternoon, up $0.42 (+1.37%). Year-to-date, YELP has declined -14.51%, versus a -15.14% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
2 Internet Stocks to Buy This November and 1 to Avoid StockNews.com
