The internet sector is positioned for long-term growth driven by the rising demand for digital services by businesses. So, investors could add quality Internet stocks eBay Inc.(EBAY ), Netflix Inc. (NFLX), and Travelzoo (TZOO) to their portfolios.
The United States serves as a major epicenter for internet engagement, boasting a population of over 307 million internet users. With internet accessibility reaching more than 90% of Americans, its influence has left an indelible mark on numerous facets of daily existence.
Moreover, the increasing prevalence of online retail, the digitization of medical records, the adoption of e-government programs, and the rapid proliferation of media and entertainment platforms propel the growth of the Internet industry.
In addition, wireless technology stands as a crucial catalyst for driving global digital transformation, amplifying efficiency, and curbing expenses in various sectors and domains. The market's growth is further propelled by government endeavors in infrastructure development, particularly in smart city projects.
The global wireless internet services market is expected to grow at a CAGR of 7% to reach $921.87 billion by 2027.
With these favorable trends in mind, let’s delve into the fundamentals of the three Internet stocks worth adding to your portfolios, beginning with the third choice.
Stock #3: eBay Inc. (EBAY )
EBAY manages a website, a global marketplace where individuals and organisations can buy and sell a wide range of products and services. The company’s platform includes its online marketplace at eBay.com and the eBay suite of mobile apps enabling users to list, buy, and sell various products.
On September 12, 2023, EBAY launched a new consignment service for luxury items, starting with designer handbags and expanding to jewelry and watches next year. This service is part of EBAY’s commitment to meeting the evolving needs of luxury shoppers and sellers.
In the fiscal second quarter that ended June 30, 2023, EBAY’s net revenues increased 4.9% year-over-year to $2.54 billion. Its gross profit grew 3.6% from the year-ago quarter to $1.82 billion. Also, its non-GAAP EPS grew 4% from the prior year’s quarter to $1.03.
Street expects EBAY’s revenue for the fiscal third quarter that ended September to rise 4.9% year-over-year to $2.50 billion. Its EPS is expected to be $1 in the same quarter. The company topped the consensus EPS estimates in each of the trailing four quarters, which is impressive.
The stock has soared 6% over the past year to close the last trading session at $40.99.
EBAY’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating 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.
EBAY has an A grade for Quality and B for Growth. Within the Internet industry, it is ranked #11 among 57 stocks.
In addition to the POWR Ratings stated above, one can see EBAY’s additional POWR Ratings for Value, Sentiment, Stability, and Momentum here.
Stock #2: Netflix Inc. (NFLX)
NFLX provides a vast selection of TV shows, documentaries, and feature films in many different genres and languages. The company’s methods of operation include domestic streaming, international streaming, and domestic DVD portions accessed via an internet subscription on a computer, a television, and a mobile device.
Recently, NFLX raised membership pricing for several streaming plans in the United States, Great Britain, and France. The price increases are a result of the business’s efforts to boost profitability and deal with rising production costs.
During the third quarter that ended September 30, 2023, NFLX’s revenue rose 7.8% year-over-year to $8.54 billion. Its operating income grew 25% from the previous-year quarter to $1.92 billion. The company’s net income and EPS increased 20% and 20.3% year-over-year to $1.68 billion and $3.73.
According to the company's forecast, NFLX’s revenue is expected to increase 11% in the fourth quarter to $8.69 billion. The company anticipates net subscriber additions similar to the previous quarter.
Analysts expect NFLX’s EPS to rise significantly year-over-year to $2.24 in the fiscal fourth quarter ending December 2023. Its revenue is expected to grow 10.7% from the previous-year quarter to $8.69 billion in the same quarter. Moreover, the company has a remarkable earnings surprise history, surpassing the EPS estimates in three of the trailing four quarters.
The stock has soared 46.5% over the past year to close the last trading session at $413.73. It returned 40.3% year-to-date.
NFLX’s POWR Ratings reflect this robust outlook. The stock has an overall B rating, translating to a Buy in our proprietary rating system.
It has a B grade for Growth, Sentiment, and Quality. It is ranked #8 in the same industry.
To see additional POWR Ratings for Value, Momentum, and Stability for NFLX, click here.
Stock #1: Travelzoo (TZOO)
TZOO publishes travel, entertainment, and local deals from travel and entertainment companies, as well as local businesses in North America, Europe, and the Asia Pacific.
On October 24, TZOO authorized the repurchase of up to 1,000,000 shares of the company's outstanding common stock.
During the third quarter ended September 30, 2023, TZOO reported a revenue of $20.6 million, up 30% year-over-year. Its non-GAAP operating income rose 246.4% from the prior year’s quarter to $3.85 million.
Also, the company’s net income and net income per share from continuing operations grew 197.8% and 166.7% year-over-year to $2.35 million and $0.16, respectively.
The company expects growth in the next quarter. During the pandemic, TZOO lowered its fixed costs and believes it can keep it relatively low in the foreseeable future.
The consensus EPS estimate of $0.23 for the fiscal fourth quarter ending December 2023 represents a marginal improvement year-over-year. The consensus revenue estimate of $21.61 million for the current quarter represents a 16.1% increase from the same quarter last year. The company has topped the analysts’ revenue and EPS estimates in three of the trailing quarters.
The stock gained 46.5% year-to-date, closing the last trading session at $6.53.
TZOO’s solid prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
TZOO has an A grade for Quality and a B for Value and Sentiment. It is ranked #2 in the same industry.
Click here to see TZOO’s additional POWR Ratings for Growth, Momentum, and Stability.
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.
NFLX shares were trading at $413.09 per share on Wednesday afternoon, down $0.64 (-0.15%). Year-to-date, NFLX has gained 40.09%, versus a 10.43% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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