Amid rapid digital transformation globally, the growing internet penetration positions the internet services sector to grow and expand significantly. Internet services are applied for education, retail, financial services, healthcare, telecom and IT, manufacturing, and transportation by enterprises, individuals, and government institutions.
Further, the government’s initiatives to provide affordable, reliable, high-speed internet to everyone nationwide should boost the sector’s prospects. Amid this backdrop, quality internet stocks Amazon.com, Inc. (AMZN), Pinterest, Inc. (PINS), and Data Storage Corporation (DTST) could be worth watching now.
Before diving deeper into the fundamentals of these stocks, let’s discuss what’s shaping the internet industry’s prospects.
When the COVID-19 pandemic broke out, much of the world moved online, accelerating digital transformation and technologies by several years. The pandemic fundamentally changed how we work, connect, learn, and shop. With the global economy digitalizing rapidly, businesses and individuals increasingly rely on high-speed internet services.
According to Statista, as of 2023, nearly 92% of individuals in the U.S. accessed the internet, an increase of approximately 77% in 2022. The U.S. is one of the biggest online markets globally, with around 299 million internet users as of last year.
With the growing internet penetration, there is a significant rise in online spending. The global e-commerce market is expected to reach $70.90 trillion by 2028, exhibiting a growth rate of 27.4% during 2023-2028. Increasing online shopping activities and the rising availability of several mobile applications for purchasing a diverse range of products are key factors driving the market.
Moreover, the government is stepping up with many initiatives to make the internet accessible to everyone. For instance, the Broadband Equity, Access, and Deployment (BEAD) Program allocates $42.54 billion from President Biden’s Bipartisan Infrastructure law to expand high-speed internet access by funding planning, infrastructure deployment, and adoption programs nationwide.
The growing adoption of new technologies such as 5G should further propel the expansion of the internet industry. The private 5G network deployments are rapidly increasing as enterprises continue digitizing their operations to boost automation and enhance data security. As per GSMA, 5G networks are expected to cover one-third of the world population by 2025.
According to ReportLinker, the global wireless internet services market is projected to grow to $921.97 billion in 2027 at a CAGR of 7%.
Meanwhile, investors’ interest in internet stocks is evident from the First Trust Dow Jones Internet Index Fund’s (FDN) more than 22% returns over the past six months.
Given the industry tailwinds, it's time to examine the fundamentals of the top three stocks to watch in the Internet industry, starting with the third in line.
Stock #3: Pinterest, Inc. (PINS)
PINS is a visual discovery engine that operates in the United States and internationally. The company’s engine enables people to find ideas like recipes, home, and style inspiration; offers video, product, and idea pins; and provides organizing and planning tools. It shows organic recommendations and an advertising engine based on pinners’ tastes and preferences.
On June 15, PINS and Westbrook Inc., an entertainment and media company, partnered to launch innovative branded content series for Halloween and the winter holiday season. The media company would produce branded content across Pinterest, including the platform’s new Pinterest Premiere Spotlight ad solution, to connect with prospective shoppers in an engaging format.
With Westbrook’s proven track record for creating engaging content with brands, this partnership should bode well for PINS.
For the second quarter that ended June 30, 2023, PINS’ revenues increased 6.3% year-over-year to $708.03 million. Its adjusted EBITDA grew 16.3% from the year-ago value to $107.02 million. Also, the company’s non-GAAP net income and non-GAAP net income per share came in at $142.09 million and $0.21, increases of 83.7% and 90.9% year-over-year, respectively.
Analysts expect PINS’ revenue for the fiscal year (ending December 2023) to increase 7.9% year-over-year to $3.02 billion. The consensus EPS estimate of $0.94 for the current year indicates an improvement of 52.2% year-over-year. Moreover, the company surpassed the consensus EPS estimates in each of the trailing four quarters, which is impressive.
PINS’ stock has gained 8.7% over the past six months and 24.3% over the past year to close the last trading session at $27.29.
PINS’ strong fundamentals are reflected in its POWR Ratings. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
PINS has an A grade for Quality. Within the Internet industry, it is ranked #22 out of 60 stocks.
Beyond what we stated above, we also have PINS’ ratings for Growth, Momentum, Stability, and Sentiment. Get all PINS ratings here.
Stock #2: Amazon.com, Inc. (AMZN)
AMZN engages in the retail sales of consumer products and subscriptions through online and physical stores. The company operates through North America; International; and Amazon Web Services (AWS) segments. It offers its products through its stores, including merchandise and content purchased for resale and products provided by third-party sellers.
Yesterday, AMZN announced the Buy with Prime app for Shopify, a new app integration that makes it easy for merchants to offer Buy with Prime on Shopify stores. The Buy with Prime app for Shopify allows Prime members to select Buy with Prime on a product’s detail page before completing their order within Shopify’s Checkout.
On August 24, AMZN introduced the next generation of its all-time best-selling line of cameras, Blink Outdoor 4. Powered by Blink’s proprietary silicon, Blink Outdoor 4 allows high image quality, enhanced low light sensitivity, and a wider field-of-view considerably improved over the previous generation while maintaining up to two years of battery life.
In addition, Blink’s on-device computer vision supports person detection (Blink subscription required), enabling customers to customize the motion notifications only when a person is present. This new launch is expected to boost the company’s revenue stream.
Also, on August 1, AMZN’s AWS announced the launch of the AWS Israel (Tel Aviv) Region. With this launch, developers, entrepreneurs, enterprises, government, and nonprofit organizations would have an even greater choice for running their applications and serving end users from data centers located in Israel, using advanced AWS technologies to drive innovation.
AMZN’s net sales increased 10.9% year-over-year to $134.38 billion for the second quarter that ended June 30, 2023. Its operating income grew 131.6% year-over-year to $126.70 billion. The company’s income before income taxes came in at $7.56 billion, compared to a loss of $2.65 billion in the prior-year quarter.
Furthermore, the company’s net income was $6.75 billion and $0.65 per share, compared to a loss of $2.03 billion and $0.20 in the previous year’s quarter, respectively. Also, its cash inflows from operating activities were $16.48 billion, up 83.8% year-over-year.
Analysts expect AMZN’s revenue for the third quarter (ending September 2023) to come in at $141.36 billion, indicating an increase of 11.2% year-over-year. The company’s EPS for the ongoing quarter is expected to grow 100.5% year-over-year to $0.56. Also, it has topped the consensus revenue and EPS estimates in three of the trailing four quarters.
For the fiscal year 2024, the company’s revenue and EPS are expected to grow 11.6% and 39.7% year-over-year to $569.68 billion and $3.02, respectively.
Over the past six months, shares of AMZN have gained 43.3% and 57.4% year-to-date to close the last trading session at $135.07.
AMZN’s POWR Ratings reflect this robust outlook. The stock has an overall rating of B, which equates to Buy in our proprietary rating system.
AMZN has a grade A for Sentiment and a B for Quality. The stock is ranked #14 of 60 stocks in the Internet industry.
Click here to see the additional ratings for AMZN (Growth, Value, Momentum, and Stability).
Stock #1: Data Storage Corporation (DTST)
DTST offers multi-cloud information technology solutions primarily in the United States. The company provides data protection and disaster recovery, cloud infrastructure, cybersecurity, and voice and data solutions like VoIP, data services, and wireless networks. It serves its solutions to businesses in healthcare, banking, manufacturing, education, and government sectors.
On July 27, DTST secured a multi-year subscription contract with one of the largest food distributors in the United States to provide managed disaster-recovery solutions for the client to help recover critical data more quickly and allow them to resume normal business operations quickly.
DTST’s CEO of DTST, Chuck Piluso, said, “Specifically, with this contract, we have gained a large footprint in this vertical, enhancing our reach within the food industry and providing new growth opportunities. We are proud to be supporting this premier client and look forward to exploring additional solutions for implementation in the future.”
On July 21, DTST was awarded a multi-million project with one of the nation’s leading sports and entertainment companies to provide cloud storage infrastructure. This customized solution allows DTST to improve response time to files, file recovery, and storage capacity to support a critical aspect of its security infrastructure.
During the second quarter that ended June 30, 2023, DTST’s sales increased 22.3% year-over-year to $5.90 million, and its gross profit came in at $2.58 million, up 65.5% year-over-year. The company’s income from operations was $106,744, compared to $1.04 million in the prior-year quarter.
Additionally, the company’s net income and earnings per share were $206,038 and $0.03, compared to a net loss and loss per share of $1.15 million and $0.17 in the previous year’s quarter, respectively.
Analysts expect DTST’s revenue and EPS for the next year (ending December 2024) to increase 7.9% and 90% from the previous year to $26 million and $0.19, respectively. In addition, the company has surpassed the consensus revenue estimates in three of the trailing four quarters.
DTST’s shares have gained 94.5% over the past six months and 130.3% year-to-date to close the last trading session at $3.50.
DTST’s POWR Ratings reflect solid prospects. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
DTST has an A grade for Sentiment and a B for Value and Growth. In the same industry, it is ranked #10.
In addition to the POWR Ratings we’ve stated above, we also have DTST’s ratings for Quality, Momentum, and Stability. Get all DTST ratings here.
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AMZN shares rose $0.03 (+0.02%) in premarket trading Thursday. Year-to-date, AMZN has gained 60.80%, versus a 18.82% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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