The global digital transformation is driving significant growth in the Internet services market, fueled by the e-commerce boom, healthcare digitization, rising online entertainment consumption, and e-governance initiatives.
The global internet service market is projected to touch 733.79 billion by 2031, exhibiting a CAGR of 4.4%. Moreover, as of April 2024, there were 5.44 billion internet users worldwide, accounting for 67.1% of the global population. Among the largest online markets in the world, the United States ranks third with over 311 million internet users nationwide.
Furthermore, investors’ interest in Internet stocks is evident from the Invesco NASDAQ Internet ETF’s (PNQI) 36.4% returns over the past year.
Against this backdrop, let’s compare two Internet stocks, Netflix, Inc. (NFLX) and Meta Platforms, Inc. (META), and analyze their growth potential this month.
The Case for Netflix, Inc. Stock
Valued at $263.07 billion by market cap, streaming giant Netflix, Inc. (NFLX) provides entertainment services. The company offers TV series, documentaries, feature films, and games across various genres and languages.
NFLX’s stock has gained 82.9% over the past year to close the last trading session at $610.52. Over the past nine months, the stock has surged 47%.
On May 16, 2024, NFLX announced that it would host Christmas Day football games until 2026, marking its debut into sports programming. Additionally, NFLX had previously secured other sports events like the Mike Tyson vs. Jake Paul boxing match and WWE's "Monday Night RAW." Through expansion into this domain, NFLX aims to retain and attract subscribers through prestigious content such as NFL games.
NFLX’s trailing-12-month EBIT and EBITDA margins of 22.54% and 23.55% are 152.7% and 25.3% higher than the industry averages of 8.92% and 18.81%, respectively. Likewise, its trailing-12-month net income margin of 18.42% is 511.4% higher than the industry average of 3.01%.
Its forward EV/Sales of 7.80x is 312.3% higher than the industry average of 1.89x. Also, NFLX’s forward EV/EBIT multiple of 34.62 is 120.5% higher than the industry average of 15.70x.
During the fiscal first quarter that ended March 31, 2024, NFLX’s revenues rose 14.8% from the year-ago value to $9.37 billion. Its operating income stood at $2.63 billion, up 53.8% year-over-year. For the same quarter, its net income and earnings per share increased 77.9% and 83.3% over the prior-year quarter to $2.33 billion and $5.28, respectively.
Street expects NFLX’s revenue for the second quarter (ending June 2024) to increase 16.4% year-over-year to $9.53 billion. For the same quarter, the company’s EPS is estimated to grow 44.7% year-over-year to $4.76. Moreover, NFLX surpassed the consensus EPS and revenue estimates in three of the trailing four quarters, which is impressive.
NFLX’s POWR Ratings reflect its 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.
NFLX has an A grade for Quality and a B for Sentiment. It is ranked #16 among 52 stocks in the B-rated Internet industry.
Click here for the additional POWR Ratings for NFLX (Value, Stability, Growth, and Momentum).
The Case for Meta Platforms, Inc. Stock
Boasting a market cap of $1.20 trillion, Meta Platforms, Inc. (META) creates products that facilitate global connectivity and sharing through mobile devices, personal computers, virtual reality headsets, and wearables. Its operations are divided into two segments: Family of Apps and Reality Labs. META owns major social media platforms like Facebook, Instagram, etc.
META’s stock has gained 98.2% over the past year and 60.8% over the past nine months to close the last trading session at $473.23.
On March 5, 2024, META and Arevon Energy, Inc., a leading renewable energy developer, owner, and operator, signed two long-term Environmental Attributes Purchase Agreements (EAPA) for the Kelso Solar Project in Scott County, Missouri.
The Kelso Solar Project will generate 349 megawatts (MWac) of power and will help support META’s operations in the region with 100% renewable energy.
META’s trailing-12-month EBIT margin and EBITDA margin of 39.53% and 47.96% are 343.3% and 155.1% higher than the industry averages of 8.92% and 18.81%, respectively. Likewise, the stock’s trailing-12-month gross profit margin of 81.50% is 63.9% higher than the industry average of 49.72%.
Its forward non-GAAP PEG of 1.30x is 2.9% lower than the industry average of 1.34x.
In the fiscal first quarter that ended March 31, 2024, META reported a 27.2% year-over-year in revenue, reaching $36.46 billion. Its income from operations improved 91.1% year-over-year to $13.82 billion. Its net income and EPS increased 116.6% and 114.1% from the prior-year quarter to $12.37 billion and $4.71, respectively.
Analysts expect META’s revenue for the second quarter (ending June 2024) to increase 19.3% year-over-year to $38.16 billion. Also, the company’s EPS for the same quarter is expected to grow 56.3% year-over-year to $4.66. Moreover, META surpassed the consensus EPS and revenue estimates in each of the trailing four quarters.
META’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
The stock has an A grade for Quality and a B for Sentiment. META is ranked #9 in the same industry.
In addition to the POWR Ratings I’ve just highlighted, you can see META’s ratings for Growth, Momentum, Value, and Stability here.
Growth Potential Analysis: NFLX vs. META
Currently, nearly 94% of Americans use the internet, with many finding it indispensable. Moreover, the expansion of mobile network coverage and improving economic conditions are enabling more people to join the interconnected "global village," driving internet market growth.
Additionally, constant updates and innovations position leading internet giants NFLX and META to benefit from the industry's promising prospects.
However, META's superior price performance over the past year, more attractive valuation metrics, higher profit margins, and promising near-term outlook make it the better stock pick for growth this month.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Internet industry here.
What To Do Next?
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
META shares fell $1.33 (-0.28%) in premarket trading Friday. Year-to-date, META has gained 33.46%, versus a 11.69% 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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