Web services are consistently in demand in the digital economy due to their critical role in improving user experience, security, and operational efficiency. Moreover, the internet's widespread penetration and its integration into daily life, combined with evolving consumer trends, have driven up the demand for well-developed, interactive websites and platforms, significantly benefiting the web services industry.
Given these favorable trends, fundamentally strong web services stocks like GoDaddy Inc. (GDDY) and Wix.com Ltd. (WIX) are worth your attention in August.
In today’s digital era, web services are crucial for staying competitive and enhancing business performance. The industry is evolving to deliver more engaging, secure, and eco-friendly online experiences, driven by trends such as AI personalization, voice search optimization, Progressive Web Apps (PWAs), advanced cybersecurity, and AR/VR integration. This makes it a promising time for investment.
Notably, the business software industry considerably fuels the expansion of the web services sector by delivering crucial tools that boost operational efficiency, data management, and digital innovation. With the increasing demand for advanced business solutions amid rising e-commerce and WooCommerce, the global business software market is projected to grow at a CAGR of 11.9% through 2030.
Furthermore, the internet services sector has transformed consumer interaction through advanced cloud-based products, platforms, and web applications, enhancing connectivity and supporting online business operations. As a result, the global internet services market is projected to grow at a 4.4% CAGR, reaching $733.79 billion by 2031.
Considering these conducive trends, let’s examine the fundamentals of the two web services stock picks.
GoDaddy Inc. (GDDY)
GDDY engages in the design and development of cloud-based products in the United States and internationally. It operates through two segments: Applications and Commerce and Core Platform.
On May 22, 2024, GDDY added over 185 new prompts and features to its GenAI Prompt Library, including support for additional languages. The update introduces new categories such as ad campaigns and data analysis, designed to help small businesses use Generative AI more effectively.
In terms of the trailing-12-month levered FCF margin, GDDY’s 19.39% is 81.9% higher than the 10.66% industry average. Likewise, its 63.16% trailing-12-month gross profit margin is 26.8% higher than the 49.80% industry average. Furthermore, its 18.06% trailing-12-month EBIT margin is 265.6% higher than the 4.94% industry average.
GDDY’s total revenues for the second quarter ended June 30, 2024, rose 7.3% year-over-year to $1.12 billion. Its net income attributable to GDDY was $146.30 million, or $1.01 per share, up 76.5% and 87% respectively from the prior year’s quarter. Additionally, its non-GAAP normalized EBITDA increased 25.4% year-over-year to $331.70 million.
Street expects GDDY’s EPS and revenues for the quarter ending September 30, 2024, to increase 40.6% and 6.9% year-over-year to $1.25 and $1.14 billion, respectively. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 120.9% to close the last trading session at $156.41.
GDDY’s POWR Ratings reflect strong prospects. It has an overall rating of B, which translates to a Buy in our proprietary system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #8 out of 39 stocks in the B-rated Software - Business industry. It has a B grade for Quality. Click here to access additional ratings for GDDY’s Growth, Value, Momentum, Stability, and Sentiment.
Wix.com Ltd. (WIX)
Headquartered in Tel Aviv, Israel, WIX develops and markets a cloud-based platform for creating websites and web applications. Its offerings include a visual development platform for customized website creation. The company also provides vertical-specific applications and complementary services like App Market and Owner App for website management.
On August 5, 2024, WIX announced it has become the first reseller of Google's Gemini for Workspace. This integration brings advanced generative AI solutions to WIX users, enhancing productivity, creativity, and efficiency within Google Workspace apps.
On July 31, 2024, WIX announced a suite of AI-powered tools for blogs, enabling users to generate content ideas, drafts, and images efficiently. The new features streamline blog creation, enhance content quality, and improve SEO while integrating seamlessly with WIX’s platform.
In terms of the trailing-12-month gross profit margin, WIX’s 67.68% is 35.9% higher than the 49.80% industry average. Its 2.59% trailing-12-month Capex/Sales is 19.2% higher than the 2.18% industry average. Likewise, its 1.01x trailing-12-month asset turnover ratio is 63% higher than the industry average of 0.62x.
For the second quarter ended June 30, 2024, WIX’s revenues increased 11.7% year-over-year to $435.75 million. The company’s non-GAAP gross profit rose 12% year-over-year to $298.26 million. Additionally, its non-GAAP net income amounted to $99.62 million, or $1.67 per share, up 27.6% and 32.5% from the year-ago values, respectively.
For the quarter ending September 30, 2024, WIX’s EPS is expected to increase 30% year-over-year to $1.43. Its revenue for the same quarter is expected to increase 12.7% year-over-year to $443.90 million. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 79.8% to close the last trading session at $161.53.
It’s no surprise that WIX has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has an A grade for Growth and a B for Sentiment and Quality. Within the Internet - Services industry, it is ranked #4 out of 26 stocks. Beyond what we stated above, we also have given WIX grades for Value, Momentum, and Stability. Get all the WIX ratings here.
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GDDY shares were trading at $157.32 per share on Friday afternoon, up $0.48 (+0.31%). Year-to-date, GDDY has gained 48.19%, versus a 12.89% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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