While Pinterest, Inc. (PINS) is making strides in increasing user engagement and improving monetization, it faces potential challenges due to the prevailing economic uncertainty that could impact its digital advertising market. Additionally, concerns arise from the company's negative profitability margins.
However, it's worth noting that the internet industry as a whole is flourishing, driven by solid demand amid widespread digitalization. So, quality internet stocks eBay Inc. (EBAY), Fiverr International Ltd. (FVRR), and Yelp Inc. (YELP) could be better buys than PINS.
During an Investor Day presentation, PINS recently presented an optimistic outlook for its business. The company anticipates "high-single-digit range" revenue growth for the third quarter.
Nevertheless, Julia Donnelly, Pinterest's CFO, emphasized that this positive outlook relies on the assumption of a stabilized to slightly improving digital advertising market in the future. Forecasting ad spending can be uncertain in a challenging landscape marked by high-interest rates and inflation.
Moreover, the company’s total costs and expenses rose 11.5% from the previous-year quarter to $781.27 million, and its operating loss amounted to $73.24 million in the second quarter.
Additionally, PINS’ profitability indicates bleak prospects. Its trailing-12-month EBIT margin and EBITDA margins of negative 7.70% and 6.26% are lower than the industry averages of 8.50% and 18.28%, respectively. Its negative trailing-12-month net income margin of 10.14% compares to the 3.60% industry average.
Now, talking about the internet industry, digital transformation across multiple industries is bolstering the sector. The internet industry is also experiencing significant growth driven by the expansion of online commerce for both retail goods and services, the digitization of hospital records, the implementation of e-government initiatives, and the rapid rise of platforms for media and entertainment content.
In addition, wireless technology plays a crucial role in accelerating the global digital revolution by improving productivity and reducing costs across various sectors and industries. The global wireless internet services market is expected to grow to $921.87 billion in 2027 at a CAGR of 7%.
With these favorable trends in mind, let’s delve into the fundamentals of the three Internet stocks that are better than PINS, beginning with the third choice.
Stock #3: eBay Inc. (EBAY)
EBAY operates marketplace platforms that connect buyers and sellers internationally. The company’s platform includes its online marketplace at eBay.com and the eBay suite of mobile apps enabling users to list, buy, and sell various products.
EBAY’s trailing-12-month gross profit margin of 72.37% is 104.4% higher than the industry average of 35.41%. The stock’s trailing-12-month EBIT and EBITDA margins of 23.48% and 27.70% are higher than the industry averages of 7.36% and 11.04%, respectively.
On September 12, 2023, EBAY launched a new consignment service for luxury items, starting with designer handbags and expanding to jewelry and watches next year.
It aims to provide a seamless process for selling high-end items, with the added benefit of eBay's Authenticity Guarantee for eligible items priced at $500 or more. This service is part of eBay's commitment to meeting the evolving needs of luxury shoppers and sellers.
In the fiscal second quarter that ended June 30, 2023, EBAY’s net revenues increased 4.9% year-over-year to $2.54 billion. Its gross profit grew 3.6% from the year-ago quarter to $1.82 billion. Also, its non-GAAP EPS grew 4% from the prior year’s quarter to $1.03.
Street expects EBAY’s revenue for the fiscal third quarter that ended September to rise 4.9% year-over-year to $2.90 billion. Its EPS is expected to be $1 in the same quarter. The company has an impressive earnings surprise history as it topped the consensus EPS estimates in each of the trailing four quarters.
The stock has soared 11% over the past year to close the last trading session at $42.94.
EBAY’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, translating to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
EBAY has an A grade for Quality and B for Growth. In the 57-stock Internet industry, it is ranked #9.
Access EBAY’s additional POWR Ratings for Momentum, Value, Stability, and Sentiment here.
Stock #2: Fiverr International Ltd. (FVRR)
FVRR, headquartered in Tel Aviv, Israel, operates an online marketplace. The platform enables sellers to offer services and enables buyers to make purchases. FVRR’s platform covers 600 categories in ten verticals, such as graphic design, digital marketing, writing, translation, video, and more.
FVRR’s trailing-12-month gross profit margin of 81.71% is 171.1% higher than the 30.14% industry average. Its trailing-12-month levered FCF margin of 8.18% is 47.2% higher than the industry average of 5.56%.
On August 10, FVRR expanded its partnership with England and Arsenal star Bukayo Saka, focusing on the launch of an incubator program called Ideatorr.
Ideatorr is designed to support young entrepreneurs in the UK, equipping them with skills and networks to advance their businesses. This initiative aligns with FVRR and Saka's goal of promoting diversity among entrepreneurs and leveling the playing field.
During the fiscal second quarter, which ended on June 30, 2023, FVRR’s non-GAAP gross profit grew 7.1% year-over-year to $75.26 million. Its non-GAAP net income and non-GAAP net income per share attributable to ordinary shareholders rose 311.4% and 308.3% from the year-ago quarter to $20.04 million and $0.49, respectively.
In addition, its adjusted EBITDA grew 231.5% year-over-year to $15.27 million.
Analysts expect FVRR’s EPS and revenue for the fiscal third quarter (ended September 2023) to increase 119.9% and 10.4% year-over-year to $0.46 and $91.09 million. Moreover, the company topped the EPS estimates in all four trailing quarters, which is remarkable.
The stock gained 2.4% intraday to close the last trading session at $24.75.
FVRR’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system.
It has an A grade for Growth and a B for Quality. Within the same industry, it is ranked #6.
Click here to see FVRR’s additional ratings for Value, Momentum, Stability, and Sentiment.
Stock #1: Yelp Inc. (YELP)
YELP connects consumers with local businesses through its platform. The platform spans various local business categories, such as restaurants, shopping, beauty, and health, as well as home, local, auto, professional, pets, events, real estate, and financial services.
YELP’s trailing-12-month gross profit margin of 91.20% is 84.7% higher than the industry average of 49.37%. The stock’s trailing-12-month levered FCF margin of 22.66% is 183.1% higher than the industry average of 8.01%.
On September 28, YELP disclosed that on September 15, 2023, its Compensation Committee granted restricted stock unit awards totaling 15,118 shares of YELP's common stock to three new non-executive employees as part of its employment inducement strategy.
These awards were issued under the Yelp Inc. 2023 Inducement Award Plan and will vest over four years, contingent upon the employees' ongoing tenure with YELP up to each vesting date.
YELP’s net revenue increased 12.8% year-over-year to $337.13 million in the second quarter that ended June 30, 2023. Its income from operations came in at $18.74 million, up 17.1% year-over-year. The company’s adjusted EBITDA rose 24.7% year-over-year to $83.94 million.
Moreover, the company’s net income and net income per share attributable to common stockholders grew 83.9% and 90.9% year-over-year to $14.73 million and $0.21, respectively.
YELP’s EPS is expected to grow 55.7% year-over-year to $0.79 for the fiscal third quarter ended September 2023. Its revenue is likely to increase 10.2% year-over-year to $340.52 million in the same quarter. Also, the company surpassed the consensus revenue estimates in each of the four trailing quarters.
The stock gained 53.6% year-to-date to close the last trading session at $41.99.
YELP’s robust outlook is reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
The stock has an A grade for Growth and Quality and a B for Value. It ranks at the top of the same industry.
In addition to the POWR Ratings stated, one can access YELP’s Momentum, Sentiment, and Stability ratings here.
What To Do Next?
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EBAY shares were trading at $42.26 per share on Thursday morning, down $0.68 (-1.58%). Year-to-date, EBAY has gained 3.65%, versus a 11.60% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
3 Internet Stock Buys Better Than Pinterest (PINS) StockNews.com
