Consumer internet businesses are redefining how people engage with the world by giving them instant connectivity and convenience. These themes have enabled rapid growth for the industry, which has posted a 19.2% gain over the past six months. This was a good place to be as the S&P 500 was stuck in neutral.
Although these companies have produced results, only those with the widest moats will survive as emerging red-hot players pop up regularly to take their slice of the pie. On that note, here are two resilient internet stocks at the top of our wish list and one we’re swiping left on.
One Consumer Internet Stock to Sell:
Snap (SNAP)
Market Cap: $15.83 billion
Founded by Stanford University students Evan Spiegel, Reggie Brown, and Bobby Murphy, and originally called Picaboo, Snapchat (NYSE: SNAP) is an image centric social media network.
Why Does SNAP Give Us Pause?
- Preference for prioritizing user growth over monetization has led to 2.5% annual drops in its average revenue per user
- Expenses have increased as a percentage of revenue over the last few years as its EBITDA margin fell by 5.5 percentage points
- Earnings per share fell by 14.2% annually over the last three years while its revenue grew, showing its incremental sales were much less profitable
At $9.49 per share, Snap trades at 21.5x forward EV-to-EBITDA. If you’re considering SNAP for your portfolio, see our FREE research report to learn more.
Two Consumer Internet Stocks to Watch:
Pinterest (PINS)
Market Cap: $21.99 billion
Created with the idea of virtually replacing paper catalogues, Pinterest (NYSE: PINS) is an online image and social discovery platform.
Why Are We Fans of PINS?
- Monthly Active Users have grown by 10% annually, allowing for more profitable cross-selling opportunities if it can build complementary products and features
- Disciplined cost controls and effective management resulted in a strong two-year EBITDA margin of 26%
- PINS is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders
Pinterest is trading at $33.65 per share, or 18.5x forward EV-to-EBITDA. Is now the right time to buy? Find out in our full research report, it’s free.
Coinbase (COIN)
Market Cap: $48.2 billion
Widely regarded as the face of crypto, Coinbase (NASDAQ: COIN) is a blockchain infrastructure company updating the financial system with its trading, staking, stablecoin, and other payment solutions.
Why Will COIN Beat the Market?
- Monetization efforts are paying off as its average revenue per user has grown by 58% annually over the last two years
- Incremental sales significantly boosted profitability as its annual earnings per share growth of 144% over the last two years outstripped its revenue performance
- Robust free cash flow margin of 36% gives it many options for capital deployment
Coinbase’s stock price of $198.15 implies a valuation ratio of 17.2x forward EV-to-EBITDA. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.
Stocks We Like Even More
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