The Internet industry has expanded dramatically due to increased Internet penetration, demand for digital services, e-commerce expansion, remote work, cloud-based services, social media use, mobile technology, and advances in AI and data analytics.
Considering the industry’s bright prospects, investors could consider adding quality internet stocks ATRenew Inc. (RERE), 1stdibs.Com, Inc. (DIBS), and Despegar.com, Corp. (DESP) to their watchlist. Before diving deeper into their fundamentals, let’s discuss why the internet industry is well-positioned for growth.
Digitalization initiatives, advances in hardware and software, and high-speed internet connectivity drive tremendous growth in the internet industry. This has increased reliance on internet platforms for jobs, education, healthcare, recreation, and communication. Moreover, the rise of artificial intelligence and virtual reality will likely accelerate this expansion.
Global internet users increased to 5.4 billion in 2023, up from 5.3 billion in 2022, accounting for 67% of the world's total population. Improved computer access, technological innovations, and greater smartphone use have all contributed to increased internet usage, benefitting the sector.
The global internet services market is expected to grow at a CAGR of 4.4%, reaching $733.79 billion by 2031. Investors’ interest in Internet stocks is evident from the Invesco NASDAQ Internet ETF’s (PNQI) 40.7% gains over the past year.
In light of these encouraging trends, let’s examine the fundamentals of the three Internet stock picks, beginning with the third choice.
Stock #3: ATRenew Inc. (RERE)
Headquartered in Shanghai, the People’s Republic of China, RERE and its subsidiaries operate a pre-owned consumer electronics transactions and services platform in the People’s Republic of China.
In terms of forward EV/Sales, RERE is trading at 0.08x, 93% lower than the industry average of 1.17x. Likewise, its non-GAAP P/E trades at 5.84x, 61% lower than the 14.96x industry average. Also, its EV/EBITDA is trading at 4.64x, 50% lower than the 9.28x industry average.
For the fiscal fourth quarter that ended December 31, 2023, RERE’s net product revenues and net service revenues increased 31% and 19.7% year-over-year to RMB2.69 billion ($371.53 million) and RMB293.26 million ($40.50 million), respectively. Its adjusted income from operations came in at RMB81.58 million ($11.27 million).
For the same quarter, the company’s adjusted net income grew 305.2% over the prior-year quarter to RMB91.02 million ($12.57 million). In addition, its adjusted net income per ordinary share stood at RMB0.57, up 338.5% year-over-year.
Street expects RERE’s revenue and EPS for the quarter ended March 31, 2024, to increase 25.8% and 75.7% year-over-year to $512.07 million and $0.07, respectively. Over the past three months, the stock has gained 100.9% to close the last trading session at $2.15.
RERE’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.
RERE has an A grade for Sentiment and a B for Growth and Value. Within the B-rated Internet industry, it is ranked #20 out of 53 stocks. To see RERE's additional ratings for Momentum, Stability, and Quality, click here.
Stock #2: 1stdibs.Com, Inc. (DIBS)
DIBS operates an online marketplace for luxury design products worldwide. The company’s marketplace connects customers with sellers and makers of vintage, antique, and contemporary furniture and home décor, jewelry, watches, art, and fashion products.
In terms of trailing-12-month Price/Book, DIBS is trading at 1.74x, 18.4% lower than the industry average of 2.13x.
During the fourth quarter that ended December 31, 2023, DIBS reported net revenue of $20.92 million. Its gross margin was 71.5%, compared to 70.5% in the fourth quarter of 2022. Also, the company’s cash, cash equivalents and short-term investments amounted to $139.30 million as of December 31, 2023.
For the quarter ending September 30, 2024, DIBS’ revenue is expected to increase marginally year-over-year to $20.73 billion. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 55.7% to close the last trading session at $5.84.
DIBS’ 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 is ranked #16 in the same industry. It has a B grade for Growth, Momentum, Sentiment, and Quality. Click here to see the DIBS’ Value and Stability ratings.
Stock #1: Despegar.com, Corp. (DESP)
Headquartered in Buenos Aires, Argentina, DESP is an online travel company that offers a wide range of travel and travel-related products to leisure and corporate travelers through its websites and mobile applications in Latin America and the United States. The company operates in two segments: Travel Business and Financial Services Business.
In terms of forward EV/EBIT, DESP is trading at 7.52x, 44.8% lower than the industry average of 13.63x. Likewise, its EV/EBITDA is trading at 5.55x, 40.2% lower than the 9.28x industry average. Also, its EV/Sales is trading at 1.03x, 12.1% lower than the 1.17x industry average.
DESP’s total revenue for the fourth quarter that ended December 31, 2023, increased 39.9% year-over-year to $203.66 million, and its gross profit grew 42.4% from year-ago value to $143.35 million. Its adjusted EBITDA rose 248% year-over-year to $43.59 million. Also, its adjusted net income and EPS came in at $21.08 million and $21.1, up 684.3% and 139.8% year-over-year.
Analysts expect DESP’s revenue for the quarter ended March 31, 2024, to increase 9.6% year-over-year to $173.99 million. The company’s EPS for the quarter ending June 30, 2024, is expected to grow 3.5% year-over-year to $0.13. DESP’s shares have gained 130.5% over the past year, closing the last trading session at $12.38.
It’s no surprise that DESP has an overall A rating, equating to a Strong Buy in our POWR Ratings system.
It has an A grade for Growth and Quality and a B for Value. It is ranked first in the Internet industry. Beyond what is stated above, we’ve also rated DESP for Momentum, Stability, and Sentiment. Get all DESP ratings here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
DESP shares rose $0.06 (+0.48%) in premarket trading Friday. Year-to-date, DESP has gained 30.87%, versus a 6.58% 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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