The internet industry is undergoing a transformative shift towards immersive experiences, fueled by generative AI, expanding user base, e-commerce growth, and government initiatives promoting widespread connectivity.
Considering the substantial potential of the internet industry, I evaluated Meta Platforms, Inc. (META) and Booking Holdings Inc. (BKNG) to identify the internet stock with higher return potential this year. Before delving into the featured stocks, let's explore the factors shaping the internet landscape.
The internet has evolved from static websites to a dynamic social and mobile web, marking a strategic shift towards immersive experiences. Emphasizing increased connections and user engagement, the evolution aligns with changing preferences, positioning the internet sector for enhanced vitality and long-term success.
The "immersive internet" heralds the next online evolution, transcending static content to promote engaging collaboration. Augmented Reality (AR) and Virtual Reality (VR) are playing a pivotal role in creating a dynamic, participatory online environment, defining this transformative era beyond traditional web experiences.
Moreover, the ascent of generative AI augurs well for the internet sector, as its ability to generate environments and assets automatically is expected to elevate user experiences. The innovation places the industry at the forefront, paving the way for more immersive digital worlds and heightened engagement.
Gartner (IT) predicts that generative AI will redefine 70% of new web and mobile app design and development processes by 2026, revolutionizing the industry. The forecast holds the potential to significantly accelerate growth within the internet sector, highlighting the transformative impact of AI on application development.
That said, internet users are on a continuous rise, reaching 5.30 billion globally at the beginning of the fourth quarter of 2023, constituting 65.7% of the world’s population. Ongoing trends project that two-thirds of the global population will be online by mid-2024, underscoring the pervasive and expanding reach of the internet.
The burgeoning affordability of smartphones and mobile data, coupled with the surging popularity of online services, streaming, and social media, also contributes significantly to the industry's expansion. Currently, 4.95 billion people globally engage in social media, with projections indicating a rise to 5.17 billion by the end of 2024.
The rising number of internet users and the surge in online shopping are driving a projected 10% growth in the e-commerce market in the coming years. Anticipated to reach $5.026 trillion by 2028, global e-commerce sales are set to surpass $6 trillion in 2024, with 24% of retail transactions occurring online.
Additionally, government initiatives are bolstering the industry's momentum, focusing on improving widespread internet accessibility and high-speed connectivity.
The Broadband Equity, Access, and Deployment (BEAD) Program, backed by $42.45 billion from President Biden’s Bipartisan Infrastructure Law, accelerates the expansion of high-speed internet access by funding comprehensive planning, infrastructure deployment and adoption plans.
Both META and BKNG are expected to benefit from the industry’s tailwinds. In terms of price performance, META has gained 6.1% over the past month, while BKNG surged 7.9% during the same period. Moreover, META witnessed a 12.3% gain over the past three months, while BKNG climbed 10.2% over the same duration.
However, META jumped 62.5% over the past nine months, closing the last trading session at $344.47, whereas BKNG has gained 28.5% during the same period, closing the last trading session at $3,409.27.
But which Internet stock could be a better pick? Let's find out.
Recent Financial Results
For the fiscal 2023 third quarter that ended September 30, 2023, META’s revenue increased 23.2% year-over-year to $34.15 billion. Its income from operations rose 142.7% from the year-ago value to $13.75 billion. Also, its net income and EPS rose 163.5% and 167.7% from the prior year’s period to $11.58 billion and $4.39, respectively.
For the fiscal 2023 third quarter that ended September 30, 2023, BKNG’s total revenues increased 21.3% year-over-year to $7.34 billion. Its adjusted EBITDA grew 23.6% from the year-ago value to $3.28 billion. Also, the company’s non-GAAP net income rose 23.7% from the prior year’s period to $2.60 billion.
However, as of September 30, 2023, BKNG’s current liabilities amounted to $12.83 billion, up from $8.47 billion as of December 31, 2022.
Past and Expected Financial Performance
Over the past three years, META’s revenue and EBITDA increased at a CAGR of 17.1% and 15.4%, respectively. Moreover, its net income and EPS grew at a CAGR of 5.6% and 8.8%, respectively, over the same time frame.
For the fiscal year that ended December 2023, analysts expect META’s revenue to increase 14.3% year-over-year to $133.33 billion. The company’s EPS for the same period is expected to grow 68.6% from the previous year to $14.48.
BKNG’s revenue and EBITDA rose at 32.4% and 46.6% CAGR over the past three years. Furthermore, its net income and EPS increased at a CAGR of 56.1% and 61.5% during the same period.
For the fiscal year that ended December 2023, BKNG’s revenue is expected to increase 24.6% year-over-year to $21.30 billion. Likewise, the company’s EPS for the same period is expected to rise 50% from the prior year to $149.78.
Valuation
In terms of trailing-12-month P/E, META is trading at 30.62x, 24.7% higher than BKNG, which is trading at 24.55x. However, META’s trailing-12-month EV/EBITDA of 16.01x compares with BKNG’s 17.80x. In addition, META’s trailing-12-month Price/Cash Flow of 13.44x is 9.6% lower than BKNG’s 14.86x.
Profitability
META’s trailing-12-month revenue is 6.2 times that of what BKNG generates. Moreover, META is more profitable, with a trailing-12-month EBIT margin of 34.41%, compared to BKNG’s 30.71%.
Also, META’s trailing-12-month EBITDA margin and trailing-12-month cash from operations of 42.58% and $66.22 billion compare with BKNG’s 33.11% and $8.17 billion, respectively.
POWR Ratings
META has an overall rating of A, which equates to a Strong Buy in our proprietary POWR Ratings system. Conversely, BKNG has an overall rating of C, translating to Neutral. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. META has a B grade for Growth, which is justified by its robust financials. On the contrary, BKNG has a D grade for Growth, which is consistent with its comparatively weak financial performance in the most recent quarter.
Also, META has an A grade for Quality, justified by its higher-than-industry profitability. The stock’s trailing-12-month net income margin of 23.42% is 629% higher than the 3.21% industry average. Moreover, its trailing-12-month ROTA of 13.75% is significantly higher than the 1.24% industry average.
BKNG, on the other hand, also has an A grade for Quality, but its profitability is lower than META's. The stock’s trailing-12-month net income margin and trailing-12-month ROTA of 25.70% and 20.68% are 468.5% and 417.6% higher than the industry averages of 4.52% and 4%, respectively.
Of the 55 stocks in the B-rated Internet industry, META is ranked #2, while BKNG is ranked #25.
Beyond what we've stated above, we have also rated both stocks for Growth, Value, Momentum, Stability and Sentiment. Click here to view META’s ratings. Get all BKNG ratings here.
The Winner
The internet industry is flourishing owing to the shift towards immersive experiences, the ascent of generative AI, increased internet usage, diverse e-commerce platforms, digitization initiatives, and substantial government investments.
Although both META and BKNG stand to gain from this growth, META's superior financial performance and heightened profitability position it as a more favorable investment choice over BKNG at present.
Our research shows that the odds of success increase when one invests in stocks with an overall rating of Strong Buy. View all the top-rated stocks in the Internet industry here.
What To Do Next?
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
META shares were trading at $345.02 per share on Thursday morning, up $0.55 (+0.16%). Year-to-date, META has declined -2.53%, versus a -1.12% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
2024 Internet Industry Analysis: Meta Platforms (META) vs. Booking Holdings (BKNG) StockNews.com
