The digital revolution of enterprises across almost all global industries is driving huge growth in the internet industry. Given the industry’s tailwinds, investors could consider buying fundamentally sound internet stocks, Chegg, Inc. (CHGG), trivago N.V. (TRVG), and Travelzoo (TZOO), with attractive valuations.
The increased availability of computers, the global modernization of nations, and the rise in smartphone usage have made internet access more frequent and convenient for people. The integration of the internet into everyday life through various devices and services has increased its usage, benefiting the industry. As of 2024, global internet users reached 5.35 billion, equating to 66.2% of the world’s total population.
Moreover, the growing requirement for adaptable learning substitutes owing to busy lifestyles and the comprehensive use of digital technologies in education due to improvements in internet infrastructure and mobile devices, are driving the e-learning market expansion. Looking forward, IMARC Group expects the market to reach $278.30 billion by 2032, exhibiting a CAGR of 9.3%.
Furthermore, growing living standards and purchasing power are leading people to plan at least one trip per year, and they are finding online travel booking much easier to navigate. Hence, the global online travel market is expected to register a CAGR of 14.8% till 2031.
Furthermore, investors’ interest in internet stocks is evident from the Invesco NASDAQ Internet ETF’s (PNQI) 35.5% returns over the past year. The growth is evident in the growing demand for digital platforms for varied uses.
Considering these encouraging trends, let’s take a look at the fundamentals of the three best Internet industry stocks, beginning with the third choice.
Stock #3: Chegg, Inc. (CHGG)
CHGG operates a direct-to-student learning platform that helps learners build essential life and job skills to accelerate their path from learning programs in the United States and internationally.
In terms of forward EV/EBITDA, CHGG is trading at 3.45x, 65.6% lower than the industry average of 10.04x. Its forward Price/Sales multiple of 0.57 is 34.6% lower than the industry average of 0.88. Likewise, the stock’s forward EV/Sales of 0.92x is 23.9% lower than the industry average of 1.21x.
CHGG’s net revenues for the fiscal first quarter that ended March 31, 2024, amounted to $174.35 million. The company’s non-GAAP gross profit stood at $131.51 million. Its non-GAAP net income and net income per share came in at $29.59 million and $0.26, respectively. Moreover, as of March 31, 2024, the company’s total liabilities stood at $769.17 million, compared to $782.62 million as of December 31, 2023.
For the quarter ending December 31, 2024, CHGG’s EPS is expected to increase 4.4% year-over-year to $1.08. Its revenue for fiscal 2025 is expected to be $652.04 million. Moreover, the company surpassed the consensus revenue estimates in each of the trailing four quarters, which is impressive.
CHGG’s stock has plunged 30.9% over the month to close the last trading session at $3.62.
CHGG’s POWR Ratings reflect this robust 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.
The stock has an A grade for Value and a B for Growth and Quality. It is ranked #19 in the 51-stock B-rated Internet industry.
Beyond what is stated above, we’ve also rated CHGG for Momentum, Stability, and Sentiment. Get all CHGG ratings here.
Stock #2: trivago N.V. (TRVG)
Headquartered in Düsseldorf, Germany, TRVG, together with its subsidiaries, operates a hotel and accommodation search platform in the United States, Germany, the United Kingdom, and internationally. It offers an online meta-search for hotels and accommodations through online travel agencies, hotel chains, and independent hotels.
In terms of forward Price/Book, TRVG is trading at 1.17x, 42.6% lower than the industry average of 2.03x. Its forward Price/Sales multiple of 0.31 is 75% lower than the industry average of 1.23. Likewise, the stock’s forward EV/Sales of 0.14x is 92.4% lower than the industry average of 1.87x.
During the first quarter, which ended March 31, 2024, TRVG’s total revenue, came in at €101.43 million ($110.41 million). Its net total other income came in at €841 thousand ($915.48 thousand), up 5.1% year-over-year. In addition, its net cash provided by investing activities rose 479.7% from the year-ago value to €24.64 million ($26.82 million).
Analysts expect TRVG’s revenue for the year (ending December 2025) to increase 7.2% year-over-year to $555.75 million. For the same year, the company’s revenue is expected to be $0.09.
Shares of TRVG have plunged 3.8% over the past six months to close the last trading session at $2.27.
TRVG’s POWR Ratings reflect bright prospects. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
TRVG has a B grade for Value and Quality. It is ranked #18 in the same industry.
In addition to the POWR Ratings highlighted above, one can access TRVG’s ratings for Growth, Momentum, Stability, and Sentiment here.
Stock #1: Travelzoo (TZOO)
TZOO operates as an Internet media company that provides travel, entertainment, and local experiences worldwide. It operates in four segments: Travelzoo North America; Travelzoo Europe; Jack's Flight Club; and New Initiatives.
In terms of forward EV/EBITDA, TZOO is trading at 5.11x, 32.4% lower than the industry average of 7.56x. Its forward Price/Sales multiple of 1.18 is 4.2% lower than the industry average of 1.23. Likewise, the stock’s forward EV/Sales of 1.15x is 38.7% lower than the industry average of 1.87x.
For the fiscal first quarter that ended March 31, 2024, TZOO’s revenues increased 1.8% year-over-year to $21.99 million. The company’s non-GAAP operating income grew 8.3% from the year-ago value to $6 million. In addition, the company’s net income attributable to TZOO and net income per share came in at $4.24 million and $0.31, up 15.3% and 34.8% over the prior-year quarter, respectively.
Street expects TZOO’s revenue for the fiscal second quarter (ending June 2024) to increase 2.8% year-over-year to $21.72 million. The company’s EPS is expected to rise 41.1% from the prior year’s quarter to $0.25. Also, the company has topped the consensus EPS estimates in three of the four trailing quarters, which is remarkable.
Over the past nine months, the stock has gained 8.4% to close the last trading session at $7.87.
TZOO’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy in our proprietary rating system.
TZOO has an A grade for Quality and Value and a B for Sentiment. The stock is ranked #5 in the same industry.
Click here to access the additional TZOO ratings (Growth, Momentum, and Stability).
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CHGG shares were trading at $3.64 per share on Wednesday afternoon, up $0.02 (+0.55%). Year-to-date, CHGG has declined -67.96%, versus a 12.56% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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