The internet industry's optimistic long-term outlook is fueled by the surge in online activities, government initiatives, and rapid advancements made in 5G technology. Therefore, in this piece, I have compared the fundamentals of two leading industry players, Etsy, Inc. (ETSY) and Meta Platforms, Inc. (META), to determine which internet stock holds the potential for superior returns.
As of October 2023, the worldwide number of internet users reached 5.30 billion, accounting for 65.7% of the global population. Additionally, social media engagement involves 4.95 billion individuals, constituting 61.4% of the global population, underscoring the essential role of the internet and social media in fostering global connectivity.
Moreover, in the coming years, the number of internet users may see a significant increase attributed to the advancements brought about by 5G technology. The United States has achieved significant progress toward implementing its national 5G network, paving the way for the adoption of the next major mobile broadband standard.
With 5G providing peak data rates up to 20 times faster than 4G and boasting a network connection density ten times greater than its predecessor, it creates considerable opportunities for innovation, economic expansion, and an improved consumer experience. Forecasts indicate these advancements will contribute approximately $1.50 trillion to the U.S. Gross Domestic Product (GDP) by 2025.
Meanwhile, government initiatives play a pivotal role in expediting the expansion of internet connectivity. For instance, the National Telecommunications and Information Administration (NTIA), within the Department of Commerce, disclosed an allocation of approximately $50 million to enhance middle-mile high-speed internet infrastructure in New Hampshire, Tennessee, Virginia, and Wyoming.
This undertaking marks a substantial advancement in the commitment of the Biden-Harris Administration to ensure accessible and dependable high-speed internet for all Americans, in line with President Biden's Investing in America agenda.
Given the industry’s favorable outlook, ETSY and META should benefit. However, META appears to have outshined ETSY in terms of price performance by surging 86.2% over the past nine months compared to ETSY’s 19% plunge during the same period.
Likewise, META’s shares gained 26.1% over the past six months, while ETSY lost 5.9% in the same period. Moreover, META’s shares soared 177.7% year-to-date to close the last trading session at $334.22. In contrast, ETSY’s shares plummeted 28.4% year-to-date to close the last trading session at $85.82.
However, to find out which Internet stock is the better pick, let us dig deeper into the fundamentals of the featured stocks.
Recent Financial Results
ETSY’s revenue for the fiscal third quarter (ended September 30, 2023) increased 7% year-over-year to $636.30 million, while its net income came in at $87.85 million and $0.64 per share, respectively. However, during the same period, the company’s cash and cash equivalents amounted to $741.96 million, declining 19.5% compared to $921.28 million as of December 31, 2022.
On the contrary, for the fiscal third quarter, which ended on September 30, 2023, META’s revenue increased 23.2% year-over-year to $34.15 billion. Its net income and EPS grew 163.5% and 167.7% from the year-ago value to $11.58 billion and $4.39, respectively. Also, during the same period, the company’s cash and cash equivalents stood at $36.89 billion, up 151.3% versus $14.68 billion as of December 31, 2022.
Past and Expected Financial Performance
ETSY’s EBITDA and levered FCF have grown at CAGRs of 9.3% and 13.3% over the past three years, respectively. Street expects ETSY’s EPS for the fiscal fourth quarter (ending December 2023) to come in at $1.34. Its revenue for the same quarter is expected to increase 1.8% year-over-year to $821.93 million.
Conversely, META’s EBITDA and levered FCF have improved at CAGRs of 15.4% and 28.5% over the past three years, respectively. Analysts predict META’s EPS and revenue for the fourth quarter (ending December 2023) to increase 178.8% and 21.1% year-over-year to $4.91 and $38.96 billion, respectively.
Profitability
META’s trailing-12-month levered FCF margin of 23.19% is higher than ETSY’s 20.61%. Additionally, META’s trailing-12-month cash per share of $14.45 is higher than ETSY’s $6.20. Furthermore, META’s trailing-12-month gross profit margin of 80.12% is higher than ETSY’s 70.56%.
Thus, META is more profitable.
Valuation
In terms of forward P/E ratio, ETSY’s 35.37x is 56.4% higher than META’s 22.62x. Also, ETSY’s forward EV/EBIT multiple of 40.00 is 124.1% higher than META’s 17.85. Furthermore, ETSY’s forward non-GAAP PEG ratio of 2.02x is 77.2% higher than META’s 1.14x.
POWR Ratings
ETSY has an overall rating of C, which equates to Neutral in our proprietary POWR Ratings system. Conversely, META has an overall rating of A, translating to a Strong Buy. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. ETSY’s D grade for Value is justified by its high valuation compared to the industry norms. In terms of forward EV/Sales, ETSY’s 4.23x is 253.4% higher than the industry average of 1.20x. Also, ETSY’s forward non-GAAP PEG multiple of 2.02 is 27.2% higher than the 1.48 industry average.
On the other hand, META’s C grade for Value is justified by its mixed Valuation metrics. META’s forward EV/Sales multiple of 6.09x is 240.9% higher than the industry average of 1.79x. Meanwhile, the stock’s forward non-GAAP PEG multiple of 1.14x is 27.6% lower than the industry average of 1.57x.
Moreover, ETSY’s D grade for Stability is justified by its 60-month Beta of 2.02, while META’s C grade for Stability is in sync with its 60-month Beta of 1.20.
Furthermore, ETSY has a C grade for Sentiment consistent with its dimmed analyst estimates for the to-be-reported quarter. Meanwhile, META’s B grade for Sentiment aligns with its robust analyst estimates for the to-be-reported quarter.
Among the 57 stocks in the Internet industry, ETSY is ranked #39, while META is ranked #2.
Beyond what we’ve stated above, we have also rated both stocks for Growth, Momentum, and Quality. Click here to view ETSY’s ratings. Get all META ratings here.
The Winner
While both ETSY and META should benefit from a promising industry landscape, META’s superior financials, higher profitability, lower valuation, and upbeat analyst sentiment could make it a better investment candidate for your portfolio over ETSY.
Our research shows that the odds of success increase when one invests in stocks with an overall rating of Strong Buy. View all the top-rated stocks in the Internet industry here.
What To Do Next?
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META shares were trading at $337.42 per share on Wednesday morning, up $3.20 (+0.96%). Year-to-date, META has gained 180.39%, versus a 22.86% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
Etsy (ETSY) vs. Meta (META) - Picking the Leading Internet Stock for December StockNews.com
