In the aftermath of the pandemic, the global landscape experienced an accelerated surge in digital activities, fueled by the growing preference for remote work culture and increased reliance on online services. Moreover, the internet industry’s prospects are further solidified by government initiatives.
Given the backdrop, this article explores the fundamentals of three quality internet stocks: Yelp Inc. (YELP), Liquidity Services, Inc. (LQDT), and Similarweb Ltd. (SMWB). However, before jumping into the fundamentals of these stocks, let us briefly examine the factors brightening the prospects of this industry.
In the transformed post-pandemic business landscape, the worldwide internet services market is anticipated to expand significantly to reach $916.50 billion by 2030, growing at an impressive CAGR of 8.2% during the forecasted period from 2022 to 2030.
As of October 2023, the global count of internet users stood at 5.30 billion, representing 65.7% of the world’s population. Within this figure, 4.95 billion people, or 61.4% of the global population, were engaged as social media users.
Moreover, as a central hub for technological innovation and home to some of the world’s foremost internet companies, the United States has witnessed a continual rise in its digital population for more than two decades. According to Statista, over 90% of Americans enjoy internet access, with a significant portion unable to envision life without it.
Furthermore, government initiatives, such as the White House's distribution of $42 billion among the nation's 50 states and U.S. territories for universal high-speed broadband access by 2030, underscore the commitment to bridging the digital divide.
Commenting on this, U.S. President Joe Biden said, "It's the biggest investment in high-speed internet ever. Because for today's economy to work for everyone, internet access is just as important as electricity, or water, or other basic services."
In addition, the National Telecommunications and Information Administration (NTIA) within the Department of Commerce disclosed an allocation of almost $50 million to enhance middle-mile high-speed internet infrastructure in New Hampshire, Tennessee, Virginia, and Wyoming.
This development is a significant step in the Biden-Harris Administration's commitment to providing affordable and dependable high-speed internet access for all Americans, aligning with President Biden's Investing in America agenda.
In essence, the ongoing developments and investments in the internet industry, both in the United States and globally, highlight the sector's vitality and potential for continued expansion in the foreseeable future. With that being said, let us delve deeper into the fundamentals of the featured stocks in detail:
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 local business categories, including restaurants, shopping, beauty and fitness, health, and other categories.
YELP’s trailing-12-month gross profit margin of 91.33% is 85.8% higher than the 48.90% industry average. Likewise, its 7.05% trailing-12-month net income margin is 112.2% higher than the 3.32% industry average. Additionally, the stock’s trailing-12-month levered FCF margin of 19.78% is 158.9% higher than the 7.64% industry average.
For the third quarter that ended September 30, 2023, YELP’s net revenue increased 11.7% year-over-year to $345.12 million, while its income from operations improved significantly from the year-ago value to $41.87 million.
Furthermore, the company’s attributable net income came in at $58.22 million and $0.79 per share, up 539.2% and 507.7% year-over-year, respectively. Also, its adjusted EBITDA rose 30.5% from the prior-year quarter to $96.47 million.
Street expects YELP’s revenue and EPS for the fiscal fourth quarter (ending December 2023) to increase 10.4% and 17.5% year-over-year to $341.21 million and $0.81, respectively. Moreover, the company has an excellent surprise history, surpassing the revenue and EPS estimates in each of the trailing four quarters.
The stock has soared 53.2% over the past year and 65.7% year-to-date to close the last trading session at $45.31.
YELP’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, translating to a Strong 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 Quality and a B for Value. In the 57-stock Internet industry, it is ranked #1. Click here to see YELP ratings for Growth, Momentum, Stability, and Sentiment.
Liquidity Services, Inc. (LQDT)
LQDT provides e-commerce marketplaces, self-directed auction listing tools, and value-added services in the United States and internationally. It operates through four segments: GovDeals; Retail Supply Chain Group (RSCG); Capital Assets Group (CAG); and Machinio.
In terms of the trailing-12-month gross profit margin, LQDT’s 54.45% is 78.6% higher than the 30.49% industry average. Its 7.44% trailing-12-month net income margin is 22.9% higher than the 6.05% industry average. Furthermore, the stock’s trailing-12-month levered FCF margin of 8.64% is 42.5% higher than the 6.07% industry average.
LQDT’s total revenue for the fiscal third quarter (ended June 30, 2023) increased 15.6% year-over-year to $80.77 million, while its non-GAAP adjusted EBITDA rose 12.4% from the year-ago value to $13.33 million.
Moreover, during the same period, the company’s non-GAAP adjusted net income and non-GAAP adjusted EPS amounted to $8.81 million and $0.28, representing increases of 24.8% and 33.3% from the prior-year quarter, respectively.
The consensus revenue estimate of $82.74 million for the fourth quarter (ended September 2023) reflects a 10% increase year-over-year. The consensus EPS estimate of $0.24 for the same quarter represents a 26.3% year-over-year improvement.
Additionally, the company surpassed its revenue estimates in each of the trailing four quarters and EPS estimates in three of the trailing four quarters, which is impressive.
LQDT’s shares have surged 64.8% over the past nine months and 47.6% year-to-date to close the last trading session at $20.75.
LQDT’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 Quality and a B for Sentiment. Within the 28 stocks Internet - Services industry, it is ranked #2. Click here to see the other ratings of LQDT for Growth, Value, Momentum, and Stability.
Similarweb Ltd. (SMWB)
Headquartered in Givatayim, Israel, SMWB provides a platform offering digital research intelligence solutions that allow senior leaders, strategy, business intelligence, and consumer insights teams to benchmark performance against competitors and market leaders, analyze trends in the market, and conduct research into specific companies, etc.
On August 1, SMWB unveiled the beta launch of its innovative SimilarAsk™ AI assistant. This groundbreaking digital intelligence tool empowers users to extract valuable insights from Similarweb Digital Data through natural language queries.
SimilarAsk represents a pioneering development in the realm of digital intelligence assistants, being the first of its kind. It is crafted by seamlessly integrating SMWB’s proprietary digital data and solutions with large language AI models.
In terms of the trailing-12-month gross profit margin, SMWB’s 76.93% is 58.1% higher than the 48.67% industry average. Likewise, its trailing-12-month asset turnover ratio of 0.90x is 45.9% higher than the industry average of 0.62x.
For the fiscal third quarter, which ended on September 30, 2023, SMWB’s revenue increased 9.6% year-over-year to $54.83 million, while its gross profit rose 21.9% from the year-ago value to $44.25 million.
During the same period, the company’s non-GAAP operating income amounted to $1.07 million versus a non-GAAP operating loss of $13.35 million in the prior-year quarter. In addition, its total current liabilities stood at $169.96 million, declining 6.1% compared to $180.93 million as of December 31, 2022.
Analysts expect SMWB’s revenue for the fourth quarter (ending December 2023) to increase 8.6% year-over-year to $55.75 million. Its EPS for the ongoing quarter is expected to be $0.02. Moreover, the company surpassed its EPS estimates in each of the trailing four quarters, which is promising.
Over the past month, the stock has gained 1.2% to close the last trading session at $5.24.
It’s no surprise that SMWB 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 Growth. Out of 28 stocks in the Internet - Services industry, it is ranked first.
In addition to the POWR Ratings we’ve stated above, we also have SMWB’s ratings for Value, Momentum, Stability, and Quality. Get all SMWB ratings here.
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YELP shares were trading at $45.57 per share on Monday afternoon, up $0.26 (+0.57%). Year-to-date, YELP has gained 66.68%, versus a 20.33% 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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