The internet industry is set for strong growth as digital services gain traction among individuals and businesses. Internet companies are expanding their offerings to meet the increasing demand for digital solutions.
Given this backdrop, investors could consider buying fundamentally strong internet stocks eBay trivago N.V. (TRVG), LegalZoom.com, Inc. (LZ), and Travelzoo (TZOO). These stocks are all trading under $10.
In 2023, global internet users hit 5.4 billion, up from 5.3 billion in the previous year, covering 67% of the world's population. The internet market thrives due to more time spent online, especially on smartphones. Its use in travel, legal services, and entertainment has expanded the industry’s prospects. The global online travel booking platform market is projected to grow to $576.42 billion in 2024 with a 12.7% CAGR.
As the internet spreads to new areas, the online legal services market is seeing increased demand, driven by tech advances like AI and mobile apps leveraging generative AI. These tools identify patterns, boost brand promotion, and improve customer experiences, fueling the internet sector’s growth.
The internet has become integral to daily life, attracting new users and nearing universal adoption. This growth is amplified by Gen AI tech, online solutions, and social commerce, potentially driving the internet services market to $733.79 billion by 2031 at a 4.4% CAGR. Furthermore, investors’ interest in Internet stocks is evident from the Invesco NASDAQ Internet ETF’s (PNQI) 40.4% 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: trivago N.V. (TRVG)
Headquartered in Düsseldorf, Germany, TRVG, together with its subsidiaries, 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.
In terms of the trailing-12-month asset turnover ratio, TRVG’s 0.93x is 92.7% higher than the 0.48x industry average. Similarly, its 97.51% trailing-12-month gross profit margin is 96.1% higher than the 49.73% industry average.
During the first quarter, which ended March 31, 2024, TRVG’s total revenue, came in at €101.43 million ($110.02 million). Its net total other income came in at €841 thousand ($912.26 thousand), up 5.1% year-over-year. In addition, its net cash provided by investing activities rose 479.7% from the year-ago value to €24.64 million ($26.73 million).
Street expects TRVG’s revenue for the quarter ending September 30, 2024, to increase 5.8% year-over-year to $176.42 million. TRVG’s stock has declined 13.5% year-to-date to close the last trading session at $2.11.
TRVG’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 a B grade for Value, and Quality. Within the B-rated Internet industry, it is ranked #14 out of 52 stocks. To see TRVG’s ratings for Growth, Momentum, Stability, and Sentiment, click here.
Stock #2: LegalZoom.com, Inc. (LZ)
LZ operates an online platform for legal and compliance solutions. The company's platform offers products and services, including business formations, creating estate planning documents, protecting intellectual property, completing certain forms and agreements, providing access to independent attorney advice, and connecting customers with experts for tax preparation and bookkeeping services.
In terms of the trailing-12-month gross profit margin, LZ’s 62.92% is 103.1% higher than the 30.99% industry average. Likewise, its 14.52% trailing-12-month levered FCF margin is 118.5% higher than the 6.65% industry average. Furthermore, its 1.51x trailing-12-month asset turnover ratio is 92.3% higher than the 0.79x industry average.
LZ’s revenue for the first quarter ended March 31, 2024, increased 5% year-over-year to $174.21 million. The company’s non-GAAP net income rose 31% year-over-year to $18.34 million. LZ’s adjusted EBITDA increased 27.6% year-over-year to $27.90 million. Additionally, its non-GAAP net income per share came in at $0.09, representing an increase of 28.6% year-over-year.
For the quarter ending June 30, 2024, LZ’s revenue is expected to increase 3.2% year-over-year to $174.24 million. LZ’s EPS for the quarter ending September 30, 2024, is expected to grow 29.5% year-over-year to $0.16. It surpassed the consensus EPS and revenue estimates in three of the four trailing quarters. The stock has declined 10.9% over the past year to close the last trading session at $9.49.
LZ’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 Quality and a B for Growth. It is ranked #12 in the same industry. To access the additional grades of LZ for Value, Momentum, Stability, and Sentiment, click here.
Stock #1: Travelzoo (TZOO)
TZOO and its subsidiaries operate as an Internet media company that provides travel, entertainment, and local experiences worldwide. They operate in four segments: Travelzoo North America, Travelzoo Europe, Jack's Flight Club, and New Initiatives.
In terms of the trailing-12-month net income margin, TZOO’s 15.24% is 460.8% higher than the 2.72% industry average. Likewise, its 23.62% trailing-12-month Return on Total Assets is considerably higher than the 1.16% industry average. Moreover, the stock’s 1.40x trailing-12-month asset turnover ratio is 189.7% higher than the 0.48x industry average.
For the fiscal first quarter that ended March 31, 2024, TZOO’s revenues increased 1.8% year-over-year to $21.99 million. The company’s non-GAAP operating income grew 8.3% from the year-ago value to $6 million. In addition, the company’s net income attributable to TZOO and net income per share came in at $4.24 million and $0.31, up 15.3% and 34.8% over the prior-year quarter, respectively.
Analysts expect TZOO’s EPS for the quarter ending June 30, 2024, to increase 41.1% year-over-year to $0.25. Its revenue for the same quarter is expected to grow 2.8% year-over-year to $21.72 million. Over the past nine months, the stock has gained 25.7% to close the last trading session at $8.17.
It’s no surprise that TZOO has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has an A grade for Value and Quality and a B for Sentiment. It is ranked #4 in the Internet industry. In total, we rate TZOO on eight different levels. Beyond what we have stated above, we also have given TZOO grades for Growth, Momentum, and Stability. Get all the TZOO 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.
LZ shares were trading at $9.27 per share on Thursday afternoon, down $0.22 (-2.32%). Year-to-date, LZ has declined -17.96%, versus a 11.82% 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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