Consumer internet businesses are redefining how people engage with the world by giving them instant connectivity and convenience. The new habits they’re cultivating are also unlocking the next leg of growth for the industry, which has gained 30.3% over the past six months compared to 17.4% for the S&P 500.

Although these companies have produced results, only those with the widest moats will survive as emerging red-hot players pop up regularly to take their slice of the pie. Keeping that in mind, here are two internet stocks boasting durable advantages and one we’re steering clear of.

One Consumer Internet Stock to Sell:

ACV Auctions (ACVA)

Market Cap: $1.80 billion

Founded in 2014, ACV Auctions (NASDAQ: ACVA) is an online auction marketplace for car dealers and wholesalers to buy and sell used cars.

Why Is ACVA Not Exciting?

1. Gross margin of 26.2% reflects its high servicing costs
2. Expensive marketing campaigns hurt its profitability and make us wonder what would happen if it let up on the gas
3. Poor free cash flow margin of 2.7% for the last two years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends

ACV Auctions is trading at $10.52 per share, or 17.2x forward EV/EBITDA. Dive into our free research report to see why there are better opportunities than ACVA.

Two Consumer Internet Stocks to Watch:

Lyft (LYFT)

Market Cap: $7.71 billion

Founded by Logan Green and John Zimmer as a long-distance intercity carpooling company Zimride, Lyft (NASDAQ: LYFT) operates a ridesharing network in the US and Canada.

Why Are We Fans of LYFT?

1. Active Riders have increased by an average of 10.3% annually, giving it the potential for margin-accretive growth if it can develop valuable complementary products and features
2. Incremental sales significantly boosted profitability as its annual earnings per share growth of 39.2% over the last three years outstripped its revenue performance
3. Free cash flow margin grew by 23.7 percentage points over the last few years, giving the company more chips to play with

At $18.99 per share, Lyft trades at 14.1x forward EV/EBITDA. Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.

Robinhood (HOOD)

Market Cap: $104.4 billion

With a mission to democratize finance, Robinhood (NASDAQ: HOOD) is an online consumer finance platform known for its commission-free stock and crypto trading.

Why Should You Buy HOOD?

1. Customer spending is rising as the company has focused on monetization over the last two years, leading to 40.9% annual growth in its average revenue per user
2. Additional sales over the last three years increased its profitability as the 54.6% annual growth in its earnings per share outpaced its revenue
3. Strong free cash flow margin of 67% enables it to reinvest or return capital consistently, and its rising cash conversion increases its margin of safety

Robinhood’s stock price of $117.75 implies a valuation ratio of 50.3x forward EV/EBITDA. Is now the right time to buy? Find out in our full research report, it’s free.

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