With continued digitalization and increased use of smartphones, internet usage has increased considerably. Moreover, the US government's proposal to expand internet services with subsidies and regulatory modifications is a significant stimulus for the country's internet sector.
While e-commerce giant Amazon.com, Inc. (AMZN) has been a dominant industry player, the company reported a loss in fiscal 2022. Also, inflationary pressures, higher interest rates, and lingering supply chain bottlenecks are expected to impact AMZN’s e-commerce operations this year.
Therefore, in this article, I have discussed why Expedia Group, Inc. (EXPE), Yelp Inc. (YELP), and Data Storage Corporation (DTST) could be better investments than AMZN.
Before discussing these stocks, let’s look at AMZN’s recent performance.
AMZN has lost 42.5% over the past year and 17.6% over the past three months, closing its last trading session at $97.24.
During the fiscal year 2022, its operating expenses rose 12.8% year-over-year to $501.74 billion, while its operating income declined 50.8% year-over-year to $12.25 billion. The company’s net loss was $2.72 billion or $0.27 per share, compared with a net income of $33.4 billion or $3.24 per share in 2021.
Moreover, AMZN missed the EPS estimates in three of the trailing four quarters. Given its weak financials, the stock looks slightly overvalued at the current price level. In terms of forward EV/Sales, the stock is currently trading at 1.97x, which is 78.6% higher than the industry average of 1.10x. Its forward EV/EBITDA multiple of 12.68 is 37.6% higher than the 9.21 industry average.
Also, AMZN’s trailing-12-month net income margin of negative 0.53% compares to the 4.5% industry average.
At the beginning of 2023, approximately 5.16 billion individuals worldwide were using the internet, accounting for 64.4% of the global population. Moreover, the number of internet users is increasing, as the latest statistics reveal that nearly 100 million users have joined the connected population in the 12 months through January 2023.
Moreover, the wireless internet services market is experiencing growth due to government efforts to develop appropriate infrastructure. Technology experts and providers are innovating new solutions to plan and construct urban infrastructure across different areas.
Let’s delve deeper into the fundamentals of EXPE, YELP, and DTST to see how well-positioned they are to capitalize on the industry’s prospects.
Expedia Group, Inc. (EXPE)
EXPE operates as an online travel company in the United States and internationally. The company operates through Retail; B2B; and trivago segments. In addition, it offers a range of travel and non-travel verticals, including corporate travel management, airlines, travel agents, online retailers, and financial institutions.
EXPE’s forward EV/EBITDA multiple of 6.24x is 31.8% lower than the industry average of 9.15x. Its forward non-GAAP PEG of 0.38x is 70.9% lower than the industry average of 1.31x.
EXPE’s trailing-12-month levered FCF margin of 20.23% is 956.7% higher than the 1.91% industry average. Its trailing-12-month gross profit margin of 85.80% is 145.2% higher than the 34.99% industry average.
EXPE’s total revenue increased 14.9% year-over-year to $2.62 billion during the fourth quarter that ended December 31, 2022. Its gross bookings grew 17.5% from the prior-year quarter to $20.51 billion. Also, the company’s adjusted net income rose 17.4% from the prior year’s quarter to $196 million, while its adjusted EPS increased 18.9% year-over-year to $1.26.
Analysts expect EXPE’s revenue for the current fiscal quarter ending March 2023 to come in at $2.67 billion, indicating an 18.8% year-over-year increase.
The stock gained 11.2% over the past three months to close the last trading session at $93.04.
EXPE’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
EXPE also has an A grade in Value and Quality. It is ranked #7 in the 59-stock Internet industry.
For additional ratings for EXPE’s Sentiment, Stability, Growth, and Momentum, click here.
Yelp Inc. (YELP)
YELP operates a platform that connects consumers with local businesses in the United States and internationally. The company’s platform covers various regional business categories. It also offers free and paid advertising products to businesses.
YELP’s forward EV/Sales of 1.40x is 26.8% lower than the industry average of 1.91x, while its forward EV/EBITDA of 6.02x is 28.5% lower than the industry average of 8.41x.
YELP’s trailing-12-month gross profit margin of 18.41% is 144.2% higher than the 7.54% industry average. Its trailing 12-month levered FCF margin of 91.14% is 83.1% higher than the 49.77% industry average.
During the fiscal fourth quarter that ended December 31, 2022, YELP’s net revenue increased 13.1% year-over-year to $309.10 million. Its adjusted EBITDA came in at $80.41 million, up 18% year-over-year. Its income from operations increased 70.4% year-over-year to $33.38 million for the same quarter.
YELP’s EPS is estimated to rise 120.8% year-over-year in the fiscal year 2023. Its revenue is expected to increase 9.1% year-over-year to $1.30 billion for the current year. Moreover, the company has surpassed revenue estimates in each of the four trailing quarters, which is impressive.
YELP has gained 13.7% over the past three months to close its last trading session at $29.73.
YELP’s POWR Ratings reflect its robust prospects. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
It also has an A grade for Value and Quality. YELP is ranked #5 in the same industry.
Click here to access additional YELP ratings for Growth, Stability, Sentiment, and Momentum.
Data Storage Corporation (DTST)
DTST provides multi-cloud information technology solutions in the United States. The company offers data protection and disaster recovery solutions, high availability, data vaulting, DRaaS, IaaS, message logic, standby server, support, maintenance, and internet solutions.
DTST’s forward EV/Sales of 0.07x is 97.2% lower than the industry average of 2.66x, while its forward EV/EBITDA multiple of 2.45x is 81.7% lower than the industry average of 13.44x.
Its trailing-12-month asset turnover ratio of 087x is 43.3% higher than the 0.61x industry average.
DTST’s sales rose 14.5% year-over-year to $4.42 million for the third quarter that ended September 30, 2022. Its gross profit grew 20.1% year-over-year to $1.85 million. Its adjusted EBITDA rose 54.7% from the prior-year quarter to $162.39 thousand.
Analysts expect DTST’s revenue to rise 9.9% year-over-year to $5.40 million in the fiscal fourth quarter that ended December 2022. It has surpassed EPS estimates in three of the four trailing quarters.
DTST has gained 7.7% over the past three months to close the last trading session at $1.61.
It is no surprise that DTST has an overall B rating, which equates to Buy in our POWR Ratings system.
It has an A grade for Sentiment and a B for Value and Quality. It is ranked #6 in the same industry.
To see the additional POWR Ratings for Growth, Momentum, and Stability for DTST, click here.
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EXPE shares rose $1.66 (+1.78%) in premarket trading Wednesday. Year-to-date, EXPE has gained 8.11%, versus a 4.66% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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