Despite profits being hurt in the post-pandemic era, the internet industry made a comeback, fueled by impactful megatrends like Artificial Intelligence (AI) and the proliferation of 5G connectivity.
In light of such megatrends, it might be an opportune time to buy the shares of three highly renowned companies, Alphabet Inc. (GOOGL), Amazon.com, Inc. (AMZN), and Meta Platforms, Inc. (META).
In recent years, an unprecedented and widespread transition to online activities can be seen, which has significantly accelerated the adoption of digital technologies and amplified the demand for internet services and products.
For instance, in 2022, the global e-commerce market attained a substantial size of $16.60 trillion. Analysts project the market to achieve an impressive $70.90 trillion by 2028, showcasing a remarkable CAGR of 27.4% from 2022 to 2028.
Moreover, enhanced internet penetration has led to a global scenario where, in July 2023, approximately 4.88 billion individuals engage in social media, constituting 60.6% of the total global population. Additionally, over the past year, social media user numbers have continued to rise, resulting in a 3.7% annualized growth at an average rate of 5.5 new users per second.
On top of it, government support for the internet industry plays a crucial role in fostering its growth and development. For example, the Biden-Harris Administration announced the allocation of nearly $1 billion in new funding for expanding internet access and adoption, particularly within Tribal Lands.
Furthermore, global 5G connections are on track to surpass 1.90 billion by the year's end. This projection charts an exceptional path, with estimates pointing toward an astonishing 6.80 billion global 5G connections by the end of 2027. This signifies an average annual growth of nearly one billion fresh connections, highlighting the substantial scope and influence of the 5G technology landscape.
Given such an optimistic outlook, investing in internet stocks like GOOGL, AMZN, and META might be profitable, considering their solid fundamentals, widespread internet offerings, and strong market presence. To that end, let us look at the fundamentals of these stocks in detail:
Alphabet Inc. (GOOGL)
Known for its pioneering internet-related services and products, GOOGL offers its various products and platforms internationally. It operates through Google Services: Google Cloud: and Other Bets segments. Its offerings include Android, Chrome, hardware, Gmail, Google Drive, Google Maps, Google Photos, Google Play, Search, and YouTube.
The stock’s trailing-12-month net income margin of 21.05% is 484.2% higher than the 3.60% industry average. Its trailing-12-month levered FCF margin of 23.57% is 199.5% higher than the 7.87% industry average. Also, GOOGL’s trailing-12-month ROCE of 23.33% is 609.7% higher than the industry average of 3.29%.
In the second quarter, which ended on June 30, 2023, GOOGL’s revenue increased 7.1% year-over-year to $74.60 billion. Its income from operations came in at $21.84 billion, up 12.3% from the year-ago value.
The company’s net income and EPS rose 14.8% and 19% from the prior-year quarter to $18.37 billion and $1.44, respectively. Moreover, its cash and cash equivalents amounted to $25.93 billion, increasing 32.2% compared to $21.88 billion as of December 31, 2022.
Street expects GOOGL’s revenue and EPS for the third quarter (ending September 30, 2023) to increase 9.4% and 34.4% year-over-year to $75.57 billion and $1.42, respectively.
Additionally, its revenue and EBIT have grown at CAGRs of 20.4% and 31.9% over the past three years, respectively. Likewise, its net income and EPS have improved at CAGRs of 24.6% and 27.6% over the same period, respectively.
GOOGL’s shares have gained 47.1% year-to-date and 37.1% over the past six months to close the last trading session at $129.78.
GOOGL’s POWR Ratings reflect this robust outlook. The stock has an overall B rating, translating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Sentiment and a B for Quality. In the 58-stock Internet industry, it is ranked #6. Click here to see GOOGL’s ratings for Growth, Value, Momentum, and Stability.
Amazon.com, Inc. (AMZN)
E-commerce behemoth AMZN engages in the sale of consumer products and subscriptions through online and physical stores in North America and worldwide. It operates through three segments: North America; International; and Amazon Web Services (AWS).
On June 22, AWS, an AMZN company, introduced AWS Generative AI Innovation Center, a $100 million program to help customers build and deploy generative Artificial Intelligence (AI) solutions. It connects AWS AI and Machine Learning (ML) experts with customers globally to envision, design, and launch new generative AI products, services, and processes.
This investment builds on AWS' long-standing commitment to AI technologies for customers and is part of their strategy to bring generative AI to a broader audience.
On March 21, AWS and NVIDIA Corporation (NVDA) jointly announced a comprehensive collaboration to create a highly scalable and on-demand AI infrastructure. This infrastructure is specifically optimized for training sophisticated Large Language Models (LLMs) and developing generative AI applications.
AMZN’s trailing-12-month gross profit margin of 45.53% is 28.6% higher than the 35.41% industry average. Its trailing-12-month CAPEX/Sales of 10.90% is 239.5% higher than the 3.21% industry average. Also, the stock’s trailing-12-month cash per share of $4.80 is 108.7% higher than the industry average of $2.30.
AMZN’s total net sales for the fiscal second quarter (ended on June 30, 2023) increased 10.8% year-over-year to $134.38 billion, while its operating income rose 131.7% from the year-ago value to $7.68 billion.
During the same period, the company’s net income and EPS amounted to $6.75 billion and $0.65 versus a net loss and loss per share of $2.03 billion and $0.20 in the same period last year, respectively. Also, its comprehensive income came in at $7.04 billion.
Analysts expect AMZN’s revenue and EPS for the third quarter (ending September 30, 2023) to increase 11.2% and 99.8% year-over-year to $141.35 billion and $0.56, respectively. Moreover, it surpassed the EPS and revenue estimates in three of the trailing four quarters, which is promising.
Over the past three years, its revenue and EBITDA have grown at CAGRs of 18.7% and 17%, respectively. Likewise, its total assets have improved at a CAGR of 22.7% over the same period.
The stock has gained 63.9% year-to-date to close the last trading session at $137.67.
AMZN’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
It has an A grade for Sentiment and a B for Quality. Within the same industry, it is ranked #14. Click here to see the other ratings of AMZN for Growth, Value, Momentum, and Stability.
Meta Platforms, Inc. (META)
Social media icon META engages in the development of products that enable people to connect and share with friends and family through mobile devices, personal computers, virtual reality headsets, and wearables worldwide. It operates in two segments: Family of Apps and Reality Labs.
On July 18, META strengthened its longstanding collaboration with Microsoft Corporation (MSFT) by selecting it as the favored partner for Llama 2, an open-source large language model available for free for research and commercial purposes. Access to Llama 2 is being facilitated with the backing of a varied spectrum of companies, along with individuals representing technology, academia, and policy domains.
META’s trailing-12-month gross profit margin of 79.45% is 60.9% higher than the 49.37% industry average. Its trailing-12-month EBITDA margin of 37.27% is 104.5% higher than the industry average of 18.22%. In addition, the stock’s trailing-12-month net income margin of 18.71% is 419.1% higher than the industry average of 3.60%.
For the second quarter that ended June 30, 2023, META’s total revenue increased 11% year-over-year to $31.99 billion, while its income from operations grew 12.4% from the year-ago value to $9.39 billion.
META’s net income and EPS amounted to $7.79 billion and $2.98, representing increases of 16.5% and 21.1%, respectively, from the prior year’s quarter. Also, its free cash flow stood at $10.95 billion, up 146.2% year-over-year.
The consensus revenue estimate of $33.35 billion for the fiscal third quarter (ending September 30, 2023) represents a 20.3% increase year-over-year. The consensus EPS estimate of $3.57 for the current quarter indicates a 117.6% improvement year-over-year. The company has an excellent surprise history, surpassing the consensus revenue estimates in each of the trailing four quarters.
META’s revenue grew at 17.1% and 19.9% CAGRs over the past three and five years, respectively. Over the past three years, its EBITDA and levered FCF rose at CAGRs of 9.6% and 18.2%, respectively.
Over the past nine months, the stock has gained 157.9% to close the last trading session at $301.95.
It’s no surprise that META has an overall rating of B, which equates to Buy in our proprietary rating system. It has an A grade for Sentiment and Quality and a B for Growth. Out of 58 stocks in the same industry, it is ranked #7.
In addition to the POWR Ratings we’ve stated above, we also have META’s ratings for Value, Momentum, and Stability. Get all META ratings here.
What To Do Next?
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GOOGL shares were trading at $128.24 per share on Wednesday afternoon, down $1.54 (-1.19%). Year-to-date, GOOGL has gained 45.35%, versus a 16.34% 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.
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