With rising internet penetration, the global internet market is poised for rapid expansion. Moreover, the upsurge in digital activities such as e-commerce, online payments, and remote and hybrid work is paving the way for growth in the industry. However, while leading internet stocks Match Group, Inc. (MTCH) and Upwork Inc. (UPWK) could be ideal buys for 2024, Expedia Group, Inc. (EXPE) might be best kept on hold.
By the start of the fourth quarter of this year, the global internet user count reached 5.30 billion, representing 65.7% of the world's total population. Over the past 12 months leading to October 2023, the connected population increased by 189 million users.
Moreover, government initiatives like The Digital Equity Act and the Broadband Equity, Access, and Deployment (BEAD) program indicate a significant commitment to addressing the digital divide in the United States and promoting inclusivity in the internet industry.
In addition, global 5G adoption shows robust growth, with 537 million new connections added as of the third quarter this year, reaching a total of 1.60 billion, a 71% increase over the past year. Also, North America remains a 5G leader, boasting 176 million connections in the previous quarter, reflecting a 14% quarter-over-quarter increase, with a 26% market share and 46% penetration rate.
On top of it, the growing demand for digitalization in the service and commercial sectors is driving market expansion for internet services. Increased use of eHealth platforms, the rise in remote work, and expanded online learning contribute to this demand. The global market for internet services is projected to reach a revised size of $916.50 billion by 2030, growing at a CAGR of 8.2%
Stocks to Buy:
Match Group, Inc. (MTCH)
MTCH provides dating products worldwide. The company’s portfolio of brands includes Tinder, Match, Meetic, OkCupid, Hinge, Pairs, PlentyOfFish, OurTime, and various other brands.
MTCH’s trailing-12-month gross profit margin of 70.18% is 43.5% higher than the industry average of 48.90%. Its trailing-12-month EBIT margin of 16.62% is 105.7% higher than the 8.08% industry average.
On December 5, 2023, MTCH’s company Hinge launched the One More Hour™ initiative, aiming to address the loneliness epidemic among Gen Z by encouraging more in-person connections. The program begins with a $1 million fund, providing grants to social groups and organizations fostering community and belonging for Gen Z. The initiative aligns with Hinge's ongoing efforts to combat loneliness and support meaningful in-person connections.
In November, MTCH expanded its safety feature "Are You Sure?" (AYS?) to millions of users across platforms such as Match, Stir, OurTime, BLK, Chispa, and Upward by the end of the year. Hinge is set to introduce this safety feature next year.
MTCH’s total revenue increased 8.9% year-over-year to $881.60 million for the fiscal third quarter, which ended September 30, 2023. Its adjusted operating income came in at $333.10 million, up 17% year-over-year. Net earnings attributable to MTCH rose 27.2% from the year-ago quarter to $163.73 million.
MTCH’s revenue and EPS are expected to grow 40.9% and 7.7% year-over-year to $893.41 million and $0.76, respectively, in the fiscal first quarter ending March 2024.
The stock has returned 13.1% over the past month and closed its last trading session at $35.81.
MTCH’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, each weighted optimally.
It also has a B grade for Value, Momentum, and Quality. It is ranked #13 in the 56-stock Internet industry.
To see MTCH’s additional Growth, Stability, and Sentiment ratings, click here.
Upwork Inc. (UPWK)
UPWK operates a global work marketplace connecting businesses with freelancers and agencies. The marketplace offers a wide range of talent across various categories, streamlining workflows and simplifying talent sourcing, outreach, and contracting.
UPWK’s trailing-12-month gross profit margin of 75.14% is 148.2% higher than the industry average of 30.28%. Its trailing-12-month levered FCF margin of 7.63% is 28.1% higher than the 5.96% industry average.
On December 5, UPWK announced strategic partnerships with SAP Fieldglass and Flextrack, marking the first collaborations for its Enterprise Suite offering. The partnerships aim to enhance workforce management by providing a unified approach.
UPWK’s total revenue for the fiscal third quarter ended September 30, 2023, increased 10.8% year-over-year to $175.73 million. Its non-GAAP gross profit increased 12.9% year-over-year to $132.46 million. In addition, its non-GAAP net income came in at $28.89 million, compared to a loss of $4.24 million in the prior-year quarter. Also, its non-GAAP net income per share came in at $0.21, compared to a loss per share of $0.03 in the year-ago quarter.
Street expects UPWK’s EPS and revenue to grow 335.3% and 10.5% year-over-year to $0.17 and $178.32 million, respectively, in the fiscal fourth quarter ending December 2023. It surpassed the consensus revenue estimates in each of the trailing four quarters, which is impressive.
Over the past six months, the stock has gained 68.1% to close the last trading session at $15.18. It has soared 34.6% over the past three months.
It’s no surprise that UPWK has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has a B grade for Growth and Momentum. Within the Internet – Services industry, it is ranked #6 among 28 stocks.
Beyond what we stated above, we have also given UPWK grades for Value, Stability, Sentiment, and Quality. Get all the UPWK ratings here.
Stock to Hold:
Expedia Group, Inc. (EXPE)
EXPE is a global player in online travel, offering various travel services and places to stay through popular brands like Expedia, Hotels.com, Vrbo, and Trivago. It serves vacationers and business travelers with perks like loyalty programs and advertising services.
While EXPE’s trailing-12-month asset turnover ratio of 0.57x is 43.1% lower than the industry average of 0.99x, its trailing-12-month gross profit margin of 86.91% is 145% higher than the 35.47% industry average.
On November 2, 2023, EXPE disclosed a new stock repurchase authorization of $5 billion, supplementing the existing share repurchase authorization of the company.
In the fiscal third quarter that ended September 30, 2023, the company’s revenue and adjusted net income improved 8.6% and 21.6% year-over-year to $3.93 billion and $778 million, respectively. Gross bookings were up 7.1% from the year-ago quarter to $25.69 billion, and adjusted EBITDA grew 12.7% year-over-year to $1.22 billion.
But its operating income declined 18.7% from the previous-year quarter to $607 million.
Analysts expect EXPE’s revenue and EPS to grow 10% and 35.7% year-over-year to $2.88 billion and $1.71, respectively.
Shares of EXPE rose 77% over the past year to close the last trading session at $153.25. However, it lost 1.1% over the past five days.
EXPE’s POWR Ratings reflect this mixed outlook. The stock has an overall rating of C, equating to a Neutral in our proprietary rating system.
EXPE has a C grade for Momentum and Sentiment. Within the Internet industry, it is ranked #19.
Click here for EXPE’s additional Growth, Value, Stability, and Quality ratings.
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.
EXPE shares were trading at $152.57 per share on Thursday morning, down $0.68 (-0.44%). Year-to-date, EXPE has gained 74.17%, versus a 26.71% 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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