The proliferation of the Internet, widespread use of smartphones, growing demand for digital offerings, higher advertising spending, and the availability of high-speed connectivity are some of the factors that are boosting the Internet sector's prospects.
Considering the industry’s bright prospects, quality internet stocks Fiverr International Ltd. (FVRR), trivago N.V. (TRVG), and LegalZoom.com, Inc. (LZ) could be wise additions to your portfolio.
Before diving deeper into their fundamentals, let’s discuss why the internet industry is well-positioned for growth.
According to Statista, there were 5.30 billion internet users in 2023, accounting for almost two-thirds of the worldwide population. The United States is one of the world's largest online markets, with more than 94% of the population having internet access.
The internet industry has thrived due to increased internet penetration, demand for online streaming and digital services, growth of learning platforms, expansion of e-commerce, remote working trends, and popularity of cloud-based services.
Adopting 5G and satellite internet services will drive the industry's future growth, helping achieve high-speed internet connectivity. Furthermore, growing internet penetration is leading to higher spending on digital advertising. The Internet service market is projected to grow at a CAGR of 4.4% to reach $733.79 billion by 2031.
Investors’ interest in Internet stocks is evident from the Invesco NASDAQ Internet ETF’s (PNQI) 40.4% gains over the past year.
With these favorable trends in mind, let’s delve into the fundamentals of the three best Internet stock picks, beginning with the third choice.
Stock #3: Fiverr International Ltd. (FVRR)
Headquartered in Tel Aviv, Israel, FVRR operates an online marketplace worldwide. Its platform enables sellers to sell their services and buyers to buy them. The company’s platform includes approximately 600 categories in ten verticals, including graphic design, digital marketing, writing, translation, video, and more.
In terms of the trailing-12-month gross profit margin, FVRR’s 82.89% is 169.8% higher than the 30.72% industry average. Likewise, its 16.51% levered FCF margin is 155.5% higher than the 6.46% industry average.
For the fiscal fourth quarter that ended December 31, FVRR’s revenue increased 10.1% year-over-year to $91.50 million. Its non-GAAP gross profit rose 12% year-over-year to $77.37 million.
For the same quarter, its non-GAAP net income and non-GAAP net income per share attributable to ordinary shareholders increased 115% and 115.4% year-over-year to $23.10 million and $0.56, respectively. In addition, its adjusted EBITDA rose 71.5% from the prior-year quarter to $16.11 million.
For the quarter ended March 31, 2024, FVRR’s revenue and EPS are expected to increase 5.1% and 25.3% year-over-year to $92.42 million and $0.45, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. The stock has declined 12.1% over the past month to close the last trading session at $20.05.
FVRR’s POWR Ratings reflect this promising outlook. It 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.
FVRR has an A grade for Growth and a B for Value and Quality. Within the B-rated Internet industry, it is ranked #10 out of 53 stocks. To see FVRR's additional ratings for Momentum, Stability, and Sentiment, click here.
Stock #2: trivago N.V. (TRVG)
Headquartered in Düsseldorf, Germany, TRVG operates a hotel and accommodation search platform in the United States, Germany, the United Kingdom, and internationally. It offers an online meta-search for hotels and accommodations through online travel agencies, hotel chains, and independent hotels.
TRVG’s trailing-12-month Return on Total Capital of 5.73% is 74.9% higher than the industry average of 3.28%. Likewise, the stock’s trailing-12-month gross profit margin of 97.53% is 96.9% higher than the industry average of 49.54%. Additionally, its 0.95x trailing-12-month asset turnover ratio is 98.6% higher than the industry average of 0.48x.
In the fourth quarter that ended December 31, 2023, TRVG’s revenue came in at €91.70 million ($98.26 million). Its operating income came in at €4.41 million ($4.73 million), and its net income came in at €2.50 million ($2.68 million). Also, its adjusted EBITDA came in at €7.30 million ($7.82 million).
Analysts expect TRVG’s revenue for the quarter ended September 30, 2024, to increase 7.8% year-over-year to $179.78 million. TRVG’s shares have gained 21.6% over the past six months to close the last trading session at $2.80.
It’s no surprise that TRVG 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 Value. It is ranked #9 in the same industry. Beyond what is stated above, we’ve also rated TRVG for Growth, Momentum, Stability, and Sentiment. Get all TRVG ratings here.
Stock #1: LegalZoom.com, Inc. (LZ)
LZ manages an online platform dedicated to legal and compliance solutions. The company’s array of products and services encompasses business formation, estate planning document creation, intellectual property protection, form completion, and agreement services.
In terms of the trailing-12-month gross profit margin, LZ’s 63.66% is 107.2% higher than the 30.72% industry average. Likewise, its 9.38% trailing-12-month Return on Total Capital is 33.7% higher than the industry average of 7.02%. Furthermore, the stock’s 14.53% trailing-12-month levered FCF margin is 124.8% higher than the industry average of 6.46%.
LZ’s revenue for the fiscal fourth quarter that ended December 31, 2023, increased 8.2% year-over-year to $158.66 million. Its adjusted EBITDA grew 26.3% from the year-ago value to $33.44 million. Also, the company’s non-GAAP net income and net income per share rose 27% and 30% from the prior year’s period to $24.13 million and $0.13, respectively.
Street expects LZ’s EPS and revenue for the quarter ended March 31, 2024, to increase 44.5% and 5.7% year-over-year to $0.10 and $175.40 million, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 40.9% to close the last trading session at $13.15.
LZ’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy in our proprietary rating system.
It has an A grade for Quality and a B for Growth and Sentiment. It is ranked #8 in the Internet industry. Click here to see LZ's additional ratings for Value, Momentum, and Stability.
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LZ shares were trading at $13.09 per share on Friday morning, down $0.06 (-0.46%). Year-to-date, LZ has gained 15.84%, versus a 9.29% 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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