The Internet industry is well-positioned for long-term growth as a result of businesses' increasing demand for digital services, penetration of the Internet, and the availability of faster connectivity through 5G. Amidst this backdrop, it could be wise to invest in fundamentally strong internet stocks like Tripadvisor, Inc. (TRIP), Data Storage Corporation (DTST), and Yelp Inc. (YELP).
But before delving into the fundamentals of the stocks, let’s first explore the industry landscape.
The outlook of the internet industry appears optimistic, driven by increased internet penetration and the rising adoption of various online services amid growing global digitalization. In 2023, there were more than 5.3 billion active Internet users around the globe, accounting for 65.4% of the global population. The number of internet users is expected to reach 6.54 billion by 2025.
The Internet industry has been growing in popularity due to the growth of e-commerce, the rise of cloud computing, the on-demand availability of digital services, remote work, online learning, etc. In today’s evolving business environment, the global internet services market is expected to reach $916.50 billion by 2030, growing at a CAGR of 8.2%.
Furthermore, the White House has committed to reducing the digital gap, as demonstrated by programs like the allocation of $42 billion for universal high-speed internet access by 2030 across the nation’s 50 states and territories.
With these favorable trends in mind, let’s take a look at the fundamentals of the three Internet stock picks, starting with number 3.
Stock #3: Tripadvisor, Inc. (TRIP)
TRIP operates as an online travel company that primarily engages in the provision of travel guidance products and services worldwide. The company operates in three segments: Tripadvisor Core, Viator, and TheFork.
In terms of the trailing-12-month gross profit margin, TRIP’s 91.78% is 87.7% higher than the 48.90% industry average. Likewise, its 15.41% trailing-12-month levered FCF margin is 101.4% higher than the industry average of 7.65%. Furthermore, the stock’s 0.67x trailing-12-month asset turnover ratio is 30.8% higher than the industry average of 0.52x.
For the fiscal third quarter, which ended September 30, 2023, TRIP’s total revenue increased 16.1% year-over-year to $533 million. Its non-GAAP net income increased 34.5% over the prior year quarter to $74 million. The company’s non-GAAP EPS came in at $0.52, registering an increase of 36.8% year-over-year. Also, its adjusted EBITDA rose 10.4% year-over-year to $127 million.
Analysts expect TRIP’s revenue and EPS for the quarter that ended December 31, 2023, to increase 5.7% and 34.7% year-over-year to $374.12 million and $0.22, respectively. Over the past six months, the stock has gained 27.7% to close the last trading session at $21.06.
TRIP’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to a 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 Growth and Value. It is ranked #10 out of 55 stocks in the B-rated Internet industry. Beyond what is stated above, we’ve also rated TRIP for Momentum, Stability and Sentiment. Get all TRIP ratings here.
Stock #2: Data Storage Corporation (DTST)
DTST provides multi-cloud information technology solutions primarily in the United States. The company offers data protection and disaster recovery solutions; high availability, data vaulting, retention, Infrastructure as a Service, standby server, support and maintenance, and internet solutions. It also provides cybersecurity solutions and voice and data solutions such as VoIP and data services.
On November 7, 2023, DTST announced that it had been selected to provide cyber security solutions for implementation into a prominent sports and entertainment company’s security systems, showcasing the trust in DTST's offerings.
Tom Kempster, President of DTST’s Flagship subsidiary, said, “In particular, our cyber security solution incorporates powerful AI technology with threat intelligence to protect the customer’s infrastructures and accelerate incident response capabilities.”
“This is an expansion of our existing relationship with the customer, which we believe validates the quality and reliability of our offerings, as well as our ability to cross-sell services across our product lines. We look forward to future technology modernizations with this client over time,” he added.
On July 27, 2023, DTST announced that it had secured a multi-year, subscription-based contract with a major U.S. food distributor, providing managed disaster-recovery solutions to reduce the recovery time of critical data and expedite the resumption of normal business operations.
This contract not only marks DTST's increased presence in the food industry but also signifies the company's success in obtaining high-margin, subscription-based contracts, reinforcing its position in delivering crucial enterprise resources and services.
In terms of the trailing-12-month CAPEX/Sales, DTST’s 5.30% is 124.2% higher than the 2.37% industry average. Likewise, its 1.01x trailing-12-month asset turnover ratio is 62.7% higher than the industry average of 0.62x.
DTST’s sales for the fiscal third quarter ended September 30, 2023, increased 35.5% year-over-year to $5.99 million. Its income from operations came in at $14.14 thousand, compared to a loss from operations of $223.22 thousand in the prior year quarter.
Its net income attributable to DTST stood at $179.01 thousand, compared to a net loss attributable to DTST of $245.62 thousand in the previous year’s quarter. Its EPS came in at $0.02, compared to a loss per share of $0.04 in the prior year quarter.
For the quarter ended December 31, 2023, DTST’s revenue is expected to increase 5.6% year-over-year to $6.30 million. Over the past year, the stock has gained 98% to close the last trading session at $2.93.
DTST’s positive outlook is reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It has a B grade for Value and Sentiment. It is ranked #8 in the same industry. Click here to see the additional ratings of DTST for Growth, Momentum, Stability, and Quality.
Stock #1: Yelp Inc. (YELP)
YELP operates a platform that connects consumers with local businesses worldwide. It provides free and paid advertising products to businesses. The company offers other services, including YELP Guest Manager, YELP Knowledge program, and YELP Fusion. In addition, it provides content licensing, as well as allows third-party data providers to update and manage business listing information on behalf of businesses.
In terms of the trailing-12-month net income margin, YELP’s 7.05% is 119.4% higher than the 3.21% industry average. Likewise, its 12.76% trailing-12-month Return on Common Equity is 274.5% higher than the industry average of 3.41%. Furthermore, the stock’s 8.95% trailing-12-month Return on Total Assets is 622.1% higher than the industry average of 1.24%.
For the fiscal third quarter, which ended September 30, 2023, YELP’s net revenue increased 11.7% year-over-year to $345.12 million. Its adjusted EBITDA increased 30.5% year-over-year to $96.47 million. The company’s net income attributable to common stockholders rose 539.2% over the prior year quarter to $58.22 million. Also, its EPS came in at $0.79, representing an increase of 507.7% year-over-year.
In addition, its free cash flow rose 54.9% year-over-year to $99.16 million.
Street expects YELP’s EPS and revenue for the quarter ended December 31, 2023, to increase 17.5% and 10.4% year-over-year to $0.81 and $341.21 million, respectively. It surpassed the consensus EPS estimate in each of the trailing four quarters. Over the past year, the stock has gained 69.6% to close the last trading session at $46.37.
It’s no surprise that YELP has an overall rating of A, which translates to a Strong Buy in our POWR Ratings system.
It has an A grade for Quality and a B for Value. It is ranked first in the Internet industry. In addition to the POWR Ratings highlighted above, you can see YELP’s ratings for Growth, Momentum, Stability, and Quality here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
YELP shares were trading at $45.99 per share on Wednesday afternoon, down $0.38 (-0.82%). Year-to-date, YELP has declined -2.85%, versus a -1.16% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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