The global pandemic acted as a catalyst for digital transformation, amplifying an urgent need for robust connectivity and increasing the adoption of digital services. Enhancements in hardware and software, coupled with advancements in connectivity and the availability of digital services on-demand, significantly boosted growth opportunities within the internet industry.
Therefore, in this piece, I have evaluated internet stocks Meta Platforms, Inc. (META) and Overstock.com, Inc. (OSTK) to determine the better investment to capitalize on the industry tailwinds. The detailed fundamental comparison below shows that META could deliver better returns than OSTK.
However, before delving deeper into the comparative analysis, let’s discuss the anticipated diversification trends and dynamic growth shifts within the broader internet industry.
In the modern, rapid-paced era, the internet has integrated itself as an essential element of our day-to-day lives and has markedly transformed our methodologies toward work, education, entertainment, commerce, communication, and financial management.
Global internet access continues to advance steadily, as evidenced by a 2.1% year-over-year increase, bringing the total number of users to an impressive 5.19 billion as of July 2023. This uptake signifies that approximately 64.5% of the global population has now embraced the online world. Active social media identities are also on a steady path, representing 60.6% of the world's population, a 3.7% rise year-over-year.
Significant government support toward digital transformation initiatives has fueled the ongoing digital revolution. This support paves the way to bridging the digital divide, nurturing the potential for individual empowerment, fostering economic growth, and promoting innovation, adding a new dynamism to nationwide progress.
Moreover, the intensifying spread of internet connectivity and smartphone use, coupled with the comprehensive acceptance of cloud computing, AI, and Internet of Things (IoT)-enabled platforms, primarily drives the internet industry's growth. The large-scale implementation of wireless sensors within smart infrastructures further accentuates this industry's progressive trajectory. The global wireless connectivity market size is anticipated to reach $233.50 billion by 2028, exhibiting a CAGR of 13.8%.
Social media giant META has been climbing back from an arduous 2022, spurred by the enthusiasm surrounding cutting-edge AI technology and a strategic cost-saving initiative that resulted in the layoff of many employees since the previous autumn.
However, META reported an impressive acceleration in advertising revenue, topping Wall Street financial targets for the second quarter of 2023 and forecasting third-quarter revenue above market expectations. Its advertising revenue stood at $31.50 billion, up 11.9% year-over-year.
Online furniture and home furnishings retailer and technology-focused innovator OSTK’s active customer count declined 29% year-over-year to 4.6 million, whereas the number of orders delivered fell 16% year-over-year to 1.8 million for the second quarter of 2023.
META has gained 9.5% over the past month versus OSTK’s 16.2% gains. However, META gained 96.2% over the past year to close the last trading session at $314.31, while OSTK returned 30.7% to complete the previous trading session at $37.86.
Here are the reasons why META could be a better buy now:
Latest Developments
Recently, META launched AudioCraft, a suite of AI models that can generate music and audio based on text prompts. The suite consists of three models: MusicGen for music generation, AudioGen for sound effects, and EnCodec for higher-quality music production. This should bode well for the company.
On June 28, OSTK acquired certain intellectual property assets of the Bed Bath & Beyond banner from Bed Bath & Beyond, Inc. under a Bankruptcy Court supervised process. This acquisition is a significant and transformative step for the company.
Recently, Bed Bath & Beyond was launched in the U.S., and merging the best of both companies into a single online shopping destination under the Bed Bath & Beyond name would mark a significant transformation for both companies.
Recent Financial Results
META’s revenues for the fiscal second quarter that ended June 30, 2023, increased 11% year-over-year to $32 billion, while its income from operations stood at $9.39 billion, up 12.4% year-over-year. The company’s net income and earnings per share came in at $7.79 billion and $2.98, up 16.5% and 21.1% from the prior-year quarter, respectively.
Its Facebook daily active users (DAUs) for June 2023 rose 5% year-over-year to 2.06 billion, while its Facebook monthly active users (MAUs) were 3.03 billion as of June 30, 2023, an increase of 3% year-over-year. Moreover, its total current assets stood at $69.56 billion as of June 30, 2023, compared to $59.55 billion as of December 31, 2022.
OSTK’s net revenue for the fiscal second quarter that ended June 30, 2023, declined 20.1% year-over-year to $422.21 million, while its gross profit stood at $94.37 million, down 22.1% from the prior-year quarter. Its operating loss for the quarter came in at $4.25 million, compared to an operating income of $11.54 million in the year-ago quarter.
The company’s net loss and net loss per share of common stock came in at $73.49 million and $1.63, compared to net income and net income per share of $7.15 million and $0.12, respectively, in the year-ago quarter. Moreover, its total current assets stood at $388.88 million as of June 30, 2023, compared to $414.51 million as of December 31, 2022.
Past and Expected Financial Performance
META’s revenue has grown at 17.1% CAGR over the past three years, while OSTK’s was a negative 2.9% CAGR over the same period. Also, META’s total assets grew at 14% and 18% CAGRs over the past three and five years, respectively, while OSTK’s grew at 7.9% and 12.4% CAGRs, over the same periods.
META’s revenue for the fiscal third quarter ending September 2023 and the year ending December 2023 are expected to increase 20.4% and 13.7% year-over-year to $33.37 billion and $132.55 billion, respectively.
For the same periods, Street expects META’s EPS estimates to increase 118.1% and 55.2% year-over-year to $3.58 and $13.36, respectively. The company surpassed the consensus revenue estimates in each of the trailing four quarters, which is impressive.
OSTK’s revenue for the fiscal third quarter ending September 2023 is expected to decline 10.3% year-over-year to $412.72 million, while its EPS is expected to come at negative $0.59. For the fiscal year ending December 2023, Street expects its revenue and EPS to decline 15.3% and 292.4% year-over-year to $1.63 billion and negative $3.26, respectively. The company failed to surpass the consensus EPS estimates in each of the trailing four quarters, which is disappointing.
Profitability
META has a trailing-12-month gross profit margin of 79.45% compared to OSTK’s 21.49%. Also, META’s trailing-12-month levered FCF margin of 16.80% compares to OSTK’s negative 3.53%.
Thus, META is more profitable.
Valuation
In terms of trailing-12-month EV/EBITDA, META is trading at 18.12x, significantly lower than OSTK, which is currently trading at 1098.33x.
POWR Ratings
META has an overall rating of B, translating to a Buy in our POWR Ratings system. On the other hand, OSTK has an overall D rating, which equates to a Sell. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories.
META’s A grade for Quality is justified as the stock’s trailing-12-month cash from operations of $55.51 billion is significantly higher than the industry average of $229.39 million. Its trailing-12-month ROCE, ROTC, and ROTA of 17.36%, 14.04%, and 10.91% are 428.1%, 263.3%, and 595.9% higher than the industry averages of 3.29%, 3.87%, and 1.57%, respectively.
OSTK’s Quality grade of D is evident from the stock’s trailing-12-month cash from operations of negative $15.59 million compared to the industry average of $209.54 million. Its trailing-12-month ROCE, ROTC, and ROTA of negative 21.06%, 0.87%, and 16.82% compare to the industry averages of 10.57%, 6.05%, and 3.72%, respectively.
Furthermore, META’s Sentiment grade of A is in sync with favorable analyst estimates, while OSTK’s Sentiment grade of D is evident from its poor analyst estimates.
META is ranked #6 within the Internet industry, while OSTK is ranked #52 out of 58 stocks.
Beyond what we’ve stated above, we have also rated both stocks for Momentum, Stability, and Value. Get all ratings of META here. To view OSTK’s ratings, click here.
The Winner
A worldwide lifestyle transition post-pandemic spurred notable increases in gaming, streaming, and AR/VR usage. This shift has generated extensive demand for high-speed internet, in turn bolstering the industry’s prospects.
Yet, considering META's strong profit prospects, attractive revenue and earnings forecasts, and cutting-edge developments like AI-powered chatbots and the forthcoming mixed reality headset, the Quest 3, META presents a more appealing investment option compared to OSTK now.
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?
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META shares were trading at $315.35 per share on Thursday morning, up $1.04 (+0.33%). Year-to-date, META has gained 162.05%, versus a 18.20% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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