The internet industry is poised for robust long-term growth due to its crucial role in digitalizing sectors, enhancing digital services, and improving user experiences globally. High-speed internet has revolutionized global e-commerce and online education and is being complemented by the rise of Gen AI tools and the emergence of social commerce, thus further strengthening the internet sector’s growth prospects.
Given this backdrop, investors could consider buying fundamentally strong internet stocks eBay Inc. (EBAY), Chegg, Inc. (CHGG), and Amazon.com, Inc. (AMZN).
The internet has seen a rapid rise in global users, with increased time spent online, especially on mobile and connected TV. Its proliferation into daily life through the devices and services we use has boosted internet usage, thus benefiting the industry. As of 2023, global internet users reached 5.4 billion, up from 5.3 billion, covering 67% of the world's population.
In this era of robust connectivity, e-commerce, and EdTech businesses are utilizing the Internet by expanding digital channels, offering an omnichannel experience across different platforms, using generative AI to identify patterns and preferences, and enhancing return experiences.
The global internet services market is projected to grow at a 4.4% CAGR, reaching $733.79 billion by 2031. Furthermore, investors’ interest in Internet stocks is evident from the Invesco NASDAQ Internet ETF’s (PNQI) 35.5% returns over the past year.
Considering these conducive trends, let’s examine the fundamentals of the three Internet stock picks, beginning with the third choice.
Stock #3: eBay Inc. (EBAY)
EBAY operates marketplace platforms that connect buyers and sellers in the United States and internationally. The company's marketplace platforms include eBay.com and the eBay suite of mobile apps. They enable users to list, buy, and sell various products.
In terms of the trailing-12-month gross profit margin, EBAY’s 71.98% is 99.3% higher than the 36.12% industry average. Its 4.51% trailing-12-month Capex / Sales is 48.5% higher than the 3.04% industry average. Also, the stock’s 12.80% trailing-12-month Return on Total Assets is 203.4% higher than the 4.22% industry average.
During the fiscal fourth quarter that ended December 31, 2023, EBAY’s net revenues increased 2.1% year-over-year to $2.56 billion. Its gross profit rose 1.3% year-over-year to $1.80 billion. Also, its non-GAAP net income from continuing operations stood at $560 million and 1.07 per share.
Street expects EBAY’s EPS and revenue for the quarter ended March 31, 2024, to increase 8.3% and 0.9% year-over-year to $1.20 and $2.53 billion, respectively. It surpassed the consensus EPS estimate in each of the trailing four quarters. Over the past six months, the stock has gained 33.4% to close the last trading session at $51.54.
EBAY’s POWR Ratings reflect its positive 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.
It has an A grade for Quality and a B for Momentum. Within the Internet industry, it is ranked #18 out of 53 stocks. To see EBAY’s ratings for Growth, Value, Stability, and Sentiment, click here.
Stock #2: Chegg, Inc. (CHGG)
CHGG operates a direct-to-student learning platform that helps learners build essential life and job skills to accelerate their path from learning programs internationally. Its subscription services include Chegg Study, Tinger Gold, DashPash Student services, Chegg Writing, Chegg Math, Chegg Study Pack, and Busuu.
In terms of the trailing-12-month EBITDA margin, CHGG’s 11.16% is 1.1% higher than the 11.04% industry average. Its 18.44% trailing-12-month levered FCF margin is 234.3% higher than the 5.52% industry average. Moreover, the stock’s 73.68% trailing-12-month gross profit margin is 104% higher than the 36.12% industry average.
CHGG’s net revenues for the fiscal first quarter that ended March 31, 2024, amounted to $174.35 million. The company’s non-GAAP gross profit stood at $131.51 million. Its non-GAAP net income and net income per share came in at $29.59 million and $0.26, respectively.
Moreover, as of March 31, 2024, the company’s total liabilities stood at $769.17 million, compared to $782.62 million as of December 31, 2023.
For the quarter ending December 31, 2024, CHGG’s EPS is expected to increase marginally year-over-year to $0.36. Its revenue for fiscal 2025 is expected to increase 0.9% year-over-year to $658.68 million. Over the past month, CHGG’s stock has declined 31.7% to close the last trading session at $5.17.
CHGG’s bright prospects are reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It has an A grade for Value and a B for Growth and Quality. It is ranked #15 in the same industry. To access the additional grades of CHGG for Momentum, Stability, and Sentiment, click here.
Stock #1: Amazon.com, Inc. (AMZN)
AMZN sells consumer products and subscriptions through online and physical stores in North America and internationally. It operates through three segments: North America, International, and Amazon Web Services (AWS). The company's products offered through its stores include merchandise and content purchased for resale and products provided by third-party sellers.
On April 30, 2024, AWS from AMZN introduced Amazon Q, a robust AI assistant that speeds up software development and harnesses internal data. It enhances coding accuracy, security, and cloud features, helping developers and businesses in finance, tech, and healthcare streamline work, automate tasks, and boost productivity.
In terms of the trailing-12-month net income margin, AMZN’s 5.29% is 17.4% higher than the 4.51% industry average. Likewise, its 9.17% trailing-12-month Capex / Sales is 202% higher than the 3.04% industry average. Moreover, the stock’s 1.16x trailing-12-month asset turnover ratio is 17.8% higher than the 0.99x industry average.
AMZN’s total net sales during the fiscal first quarter that ended March 31, 2024, increased 12.5% year-over-year to $143.31 billion. The company’s operating income grew 220.6% from the year-ago value to $15.31 billion. In addition, the company’s net income and EPS came in at $10.62 billion and $1, up 228.8% and 216.1% over the prior-year quarter, respectively.
Analysts expect AMZN’s EPS for the quarter ending June 30, 2024, to increase 57.2% year-over-year to $1.02. Its revenue for the same quarter is expected to grow 10.7% year-over-year to $148.76 billion. It surpassed the consensus EPS estimate in each of the trailing four quarters. Over the past year, the stock has gained 66% to close the last trading session at $175.
It’s no surprise that AMZN has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has an A grade for Growth and Sentiment and a B for Momentum and Quality. It is ranked #4 in the Internet industry. In total, we rate AMZN on eight different levels. Beyond what we have stated above, we also have given AMZN grades for Value and Stability. Get all the AMZN ratings here.
What To Do Next?
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AMZN shares were trading at $178.64 per share on Wednesday morning, up $3.64 (+2.08%). Year-to-date, AMZN has gained 17.57%, versus a 5.73% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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