The internet's vast usage among global users, especially on mobile devices, has positioned the industry for long-term growth. This growth is fueled by evolving consumer preferences, increasing demand for online travel, online shopping for everything from big items to groceries, and altered online interactions.
Given this backdrop, investors could consider keeping an eye on fundamentally strong internet stocks such as Despegar.com, Corp. (DESP), Dingdong (Cayman) Limited (DDL), and Yelp Inc. (YELP) this month.
The internet industry is set for strong growth due to its pivotal role in digitalizing sectors, seamless integration into daily life, empowerment of online platforms, and enhancement of global user experiences. High-speed internet has transformed global e-commerce and business operations, while Gen AI tools are boosting consumer spending, reinforcing the internet sector's growth potential.
It's evident how the internet has revolutionized travel by streamlining bookings and stays, making global shopping more accessible, and changing how people engage with online services. Its integration into daily life through devices and services has boosted internet usage, greatly benefiting the industry. The global internet services market is expected to grow at a 4.4% CAGR, reaching $733.79 billion by 2031.
The global e-commerce market is set to hit $6.3 trillion in 2024, while the Online Travel market is projected to reach $1.56 trillion in 2030 with a 13% CAGR. Businesses are tapping into the internet's strength by expanding digitally, using subscription commerce, generative AI for insights, live shopping, effective brand promotion platforms, and Progressive Web Apps.
Furthermore, investors’ interest in Internet stocks is evident from the Invesco NASDAQ Internet ETF’s (PNQI) 30.1% 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: Despegar.com, Corp. (DESP)
Headquartered in Road Town, the British Virgin Islands, DESP is an online travel company that provides a 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. It operates through three segments: Air; Packages, Hotels, and Other Travel Products; and Financial Services.
On March 4, 2024, DESP announced the launch of SOFIA, the region’s first Generative AI Travel Assistant, revolutionizing the travel market with enhanced, personalized travel planning. This innovation offers users intuitive, multimodal support throughout their entire travel experience.
In terms of forward non-GAAP PEG, DESP’s 0.58x is 62.5% lower than the 1.54x industry average. Similarly, 8.62x forward EV/EBIT is 38.2% lower than the 13.93x industry average. Also, its 6.48x forward EV/EBITDA is 34.4% lower than the 9.87x industry average.
DESP’s total revenue for the first quarter that ended March 31, 2024, rose 9.4% year-over-year to $173.66 million, and its gross profit grew 13.2% from the year-ago value to $121.90 million.
For the same quarter, its adjusted net income and EPS came in at $22.40 million, up 68.5% year-over-year. Additionally, its earnings per share stood at $0.07, compared to a loss per share of $0.10 in the year-ago quarter.
DESP’s revenue grew at a CAGR of 88.8% over the past three years. Likewise, its Total Assets grew at a CAGR of 4.6% over the past three years.
For the quarter ending June 30, 2024, DESP’s EPS and revenue are expected to increase 14.8% and 17.5% year-over-year to $0.14 and $194.49 million, respectively. Over the past year, DESP’s stock has gained 127.9% to close the last trading session at $15.15.
DESP’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. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Growth, Value, Sentiment, and Quality. It is ranked #3 out of 51 stocks in the B-rated Internet industry. To access the additional grades of DESP for Momentum, and Stability, click here.
Stock #2: Dingdong (Cayman) Limited (DDL)
Headquartered in Shanghai, China, DDL operates as an e-commerce company. The company offers fresh groceries, including vegetables, meat and eggs, fruits, and seafood; prepared food; and other food products such as baked goods, dairy, seasonings, beverages, instant food, oil, and snacks.
In terms of forward non-GAAP P/E, DDL’s 12.89x is 26.7% lower than the 17.59x industry average. Its 9.33x forward EV/EBITDA is 11.8% lower than the 10.58x industry average. Likewise, its 0.16x forward Price/Sales is 86.5% lower than the 1.19x industry average.
In the fiscal third quarter, which ended September 30, DDL’s total revenues increased marginally year-over-year to RMB5.02 billion (693.39 million). Its non-GAAP income from operations grew 115.2% year-over-year to RMB18.09 million (2.50 million).
Moreover, its non-GAAP net income attributable to ordinary shareholders and non-GAAP net income per Class A and Class B ordinary share came in at RMB39.23 million ($5.41 million) and RMB0.12, up considerably each over the prior-year quarter, respectively.
DDL’s revenue grew at a CAGR of 16.9% over the past three years.
Street expects DDL’s revenue for the quarter ending June 30, 2024, to increase 12.7% year-over-year to $751.49 million. Its EPS for fiscal 2024, is expected to grow significantly year-over-year to $0.17. Over the past three months, the stock has gained 59.5% to close the last trading session at $2.09.
DDL’s POWR Ratings reflect its positive outlook. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
It has an A grade for Growth and a B for Value, Sentiment, and Quality. Within the same industry, it is ranked #2. To see DDL’s ratings for Momentum, and Stability, click here.
Stock #1: Yelp Inc. (YELP)
YELP operates a platform that connects consumers with local businesses internationally. The company's platform covers various local business categories, including restaurants, shopping, beauty and fitness, health, and other categories, as well as home, local, auto, professional, pets, events, real estate, and financial services.
On April 30, 2024, YELP announced its Spring Product Release featuring the AI-powered Yelp Assistant, which simplifies connecting consumers with service professionals.
Additionally, Yelp introduced the Yelp Fusion AI API for natural language search on third-party platforms and revamped Yelp Guest Manager to optimize restaurant operations.
In terms of forward non-GAAP P/E, YELP is trading at 10.90x, 17.6% lower than the industry average of 13.23x. In addition, the stock’s forward EV/Sales of 1.44x is 23.3% lower than the industry average of 1.88x. Moreover, its forward EV/EBITDA of 6.42x is 14.8% lower than the industry average of 7.54x.
For the fiscal first quarter that ended March 31, 2024, YELP’s net revenue grew 6.5% year-over-year to $332.75 million. YELP’s net income attributable to common stockholders stood at $14.15 million or $0.20 per share, compared to a net loss attributable to common stockholders of $1.18 million or $0.02 per share in the year-ago quarter. Also, the company’s free cash flow stood at $65.87 million.
YELP’s EBITDA grew at a CAGR of 160.7% over the past three years. In addition, its levered FCF grew at a CAGR of 20.8% during the same period.
Analysts expect YELP’s EPS for the quarter ending June 30, 2024, to increase 9.8% year-over-year to $0.73. Its revenue for the same quarter is expected to grow 4.7% year-over-year to $352.95 million. It surpassed the Streets EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 5.7% to close the last trading session at $36.07.
It’s no surprise that YELP has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has an A grade for Value, and Quality and a B for Growth. It is ranked first in the Internet industry. Beyond what we have stated above, we also have given YELP grades for Momentum, Stability, and Sentiment. Get all the YELP ratings here.
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YELP shares were trading at $36.12 per share on Wednesday afternoon, up $0.32 (+0.89%). Year-to-date, YELP has declined -23.70%, versus a 12.65% 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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