The Internet sector is predicted to grow steadily due to increased digitization measures and rapid internet penetration. Rising demand for online services and e-commerce platforms is also fueling the industry’s growth.
Therefore, investors could consider buying fundamentally strong internet stocks: Meta Platforms, Inc. (META), Alphabet Inc. (GOOGL), and Yelp Inc. (YELP).
Before delving deeper into their fundamentals, let’s discuss what’s happening in the internet industry.
According to DataReportal, 5.35 billion people worldwide used the internet at the beginning of 2024, accounting for 66.2 % of the entire population. Internet users continue to rise, with the most recent data showing that the world’s connected population increased by 97 million users in the 12 months to January 2024.
The internet industry should thrive amid the worldwide digitization spree. Moreover, The Biden-Harris Administration approved $10 million for multi-purpose facilities in Tribal communities under the U.S. Department of the Treasury's Capital Projects Fund (CPF), which aims to provide high-speed internet access to tribal communities. This should drive industry growth.
Additionally, the Digital Equity Act and the Broadband Equity, Access, and Deployment (BEAD) program aim to provide Americans with affordable, dependable high-speed Internet access. These programs aim to drive digital inclusion among Americans.
The Internet industry has grown in popularity due to the expansion of e-commerce, cloud computing, the growth of IoT devices, on-demand digital services, remote working trends, and online learning. The global internet services market is expected to reach $733.79 billion by 2031, growing at a CAGR of 4.4%.
Moreover, the growing adoption of 5G, the rising popularity of satellite internet, and fiber-optic expansion would further drive the growth of the internet industry. The global broadband internet services market is expected to grow to $500.57 billion in 2028 at a CAGR of 4%. Investors’ interest in Internet stocks is evident from the Invesco NASDAQ Internet ETF’s (PNQI) 47.7% gains over the past year.
Considering these conducive trends, let’s examine the fundamentals of the three best Internet stock picks, starting with the third choice.
Stock #3: Meta Platforms, Inc. (META)
META develops products that enable people to connect and share with friends and family through mobile devices, personal computers, virtual reality headsets, and wearables worldwide. The company operates in two segments: Family of Apps and Reality Labs.
In terms of the trailing-12-month Return on Common Equity, META’s 28.04% is 855.6% higher than the 2.93% industry average. Likewise, its 28.98% trailing-12-month net income margin is 874.8% higher than the industry average of 2.97%. Furthermore, its 17.03% trailing-12-month Return on Total Assets is significantly higher than the 1.33% industry average.
During the fourth quarter that ended December 31, 2023, META’s revenue increased 24.7% year-over-year to $40.11 billion. The company’s income from operations grew 156% from the year-ago value to $16.38 billion. Its net income and earnings per share of $14.02 billion and $5.33 indicate growth of 201.3% and 202.8% from the prior year’s quarter, respectively.
For the quarter ending March 31, 2024, META’s revenue and EPS are expected to increase 25.9% and 95.8% year-over-year to $36.07 billion and $4.31, respectively. Over the past year, the stock has gained 151.2% to close the last trading session at $507.76.
META’s POWR Ratings reflect this promising outlook. 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.
META has an A grade for Quality and a B for Sentiment. Within the B-rated Internet industry, it is ranked #13 out of 52 stocks. To see the additional ratings of META for Growth, Value, Momentum, and Stability, click here.
Stock #2: Alphabet Inc. (GOOGL)
GOOGL offers various products and platforms. It operates through the Google Services, Google Cloud, and Other Bets segments. The Google Services segment provides products and services, including ads, Android, Chrome, Gmail, Google Drive, and more. The Google Cloud segment offers infrastructure, cybersecurity, data. The Other Bets segment sells health technology and internet services.
On February 6, 2024, GOOGL introduced an experimental conversational AI service, Bard, powered by LaMDA. It was initially open to trusted testers and will eventually be made more widely available to the public. Bard combines the world’s knowledge with the power, intelligence, and creativity of large language models (LLMs).
GOOGL’s trailing-12-month EBIT margin of 28.70% is 244% higher than the industry average of 8.34%. Its trailing-12-month Return on Total Capital of 18.40% is 454% higher than the industry average of 3.32%. Also, its 19.08% trailing-12-month levered FCF margin is 136.7% higher than the industry average of 8.06%.
For the fourth quarter ended December 31, 2023, GOOGL’s revenues increased 13.5% year-over-year to $86.31 billion. Its income from operations grew 30.5% from the year-ago value to $23.70 billion.
In addition, its net income was $20.69 billion, up 51.8% from the prior year’s quarter. Also, its EPS came in at $1.64, representing an increase of 56.2% year-over-year.
Street expect GOOGL’s EPS and revenue for the quarter ending March 31, 2024, to increase 28.3% and 12.7% year-over-year to $1.50 and $78.65 billion, respectively. Over the past year, the stock has gained 40.7% to close the last trading session at $147.60.
GOOGL’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.
It is ranked #7 in the same industry. It has a B grade for Sentiment and Quality. Click here to see GOOGL's additional ratings for Growth, Value, Momentum, and Stability.
Stock #1: Yelp Inc. (YELP)
YELP connects consumers to local businesses through its platform. It offers both free and paid advertising solutions, such as cost-per-click search advertising and multi-location Ad products. Additionally, it empowers businesses to deliver precise search advertisements to local audiences and enhance their visibility through business listing page products.
On January 30, 2024, YELP unveiled its Winter Product Release, which introduced over 20 new features. Highlights include AI-powered business summaries for quick decision-making, Recognition for passionate reviewers, and service updates that simplify connecting with the right professionals.
This release includes enhanced search filters for more precise results and a revamped user interface for more straightforward navigation. Customers can now enjoy a more seamless experience when searching for businesses and making informed choices.
YELP’s trailing-12-month Return on Total Assets of 9.77% is 634.6% higher than the industry average of 1.33%. Likewise, the stock’s trailing-12-month levered FCF margin of 23.41% is 190.3% higher than the industry average of 8.06%. Additionally, its 1.32x trailing-12-month asset turnover ratio is 173.4% higher than the industry average of 0.48x.
YELP’s net revenue for the fourth quarter that ended December 31, 2023, increased 10.8% year-over-year to $342.38 million. Its adjusted EBITDA rose 19.5% from the year-ago value to $96.05 million. Moreover, net income and net income per share attributable to common stockholders grew 36% and 32.1% from the prior year’s period to $27.41 million and $0.37, respectively.
Analysts expect YELP’s revenue for the quarter ending March 31, 2024, to increase 6.7% year-over-year to $333.40 million. Its EPS for the quarter ending June 30, 2024, is expected to grow 15.1% year-over-year to $0.77. It surpassed the consensus EPS estimates in each of the trailing four quarters. YELP’ shares have gained 28.8% over the past year to close the last trading session at $38.73.
It’s no surprise that YELP has an overall A rating, equating to a Strong Buy in our POWR Ratings system.
It has an A grade for Value and Quality and a B for Growth. It is ranked #2 in the Internet industry. Beyond what is stated above, we’ve also rated YELP for Momentum, Stability, and Sentiment. Get all YELP ratings 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.
GOOGL shares were trading at $150.13 per share on Friday morning, up $2.53 (+1.71%). Year-to-date, GOOGL has gained 7.47%, versus a 10.19% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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