The internet sector is expected to grow steadily due to increasing digitization and government initiatives to make the internet available to all. Also, increased demand for online services and e-commerce platforms is adding to the internet industry’s growth.
Therefore, it could be wise to own fundamentally strong internet stocks Amazon.com, Inc. (AMZN), Alphabet Inc. (GOOGL) and Meta Platforms, Inc. (META).
The Department of Commerce’s National Telecommunications and Information Administration (NTIA) announced today that it has allocated 28 grants totaling $74.42 million to 28 Tribal entities as part of the Tribal Broadband Connectivity Program (TBCP).
With funding from the Bipartisan Infrastructure law, these new grants boost the program’s total award to 226 Tribal entities more than $1.86 billion. Record investments in high-speed Internet deployment is a crucial component of President Biden’s Investing in America agenda.
According to Data Bridge Market Research, the broadband internet access services market will be worth $614.26 million by 2030, with a CAGR of 7.2%. The global increase in wireless users is driven by digital transformation and rising online learning uptake in enterprises requiring continuous broadband connectivity.
Investors’ interest in internet stocks is evident from the Invesco NASDAQ Internet ETF’s (PNQI) 19.9% gains over the past nine months.
Considering these conducive trends, let’s take a look at the fundamentals of the three best Internet stocks, starting with number 3.
Stock #3: Amazon.com, Inc. (AMZN)
AMZN engages in the retail sale of consumer products and subscriptions through online and physical stores in North America and internationally. It operates through three segments: North America; International; and Amazon Web Services (AWS).
AMZN’s trailing-12-month EBITDA margin of 13.35% is 21% higher than the 11.04% industry average. Its trailing-12-month levered FCF margin of 6.57% is 27.5% higher than the 5.15% industry average.
For the third quarter that ended September 30, 2023, AMZN’s net sales increased 12.6% year-over-year to $143.08 billion. Its operating income grew 343.1% from the year-ago value to $11.19 billion. The company’s net income rose 244% year-over-year to $9.88 billion. Furthermore, the company’s earnings per share came in at $0.94, an increase of 235.7% year-over-year.
Analysts expect AMZN’s revenue to increase 11.1% year-over-year to $570.77 billion for the year ending December 2023. Its EPS is expected to come in at $2.66 for the same period. It surpassed EPS estimates in three of four trailing quarters. Shares of AMZN have gained 43.3% over the past nine months to close the last trading session at $142.59.
AMZN’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 assess stocks by 118 different factors, each with its own weighting.
AMZN also has an A grade for Sentiment and a B for Growth, Momentum and Quality. It is ranked #16 out of 58 stocks in the Internet industry. Click here for the additional POWR Ratings for Value and Stability for AMZN.
Stock #2: Alphabet Inc. (GOOGL)
GOOGL offers various products and platforms internationally. It operates through Google Services, Google Cloud, and Other Bets segments. The Google Services segment provides products and services, including ads, Android, Chrome, hardware, Gmail, Google Drive, Google Maps, etc. The Google Cloud segment offers infrastructure, cybersecurity, data, etc. The Other Bets segment sells health technology and internet services.
GOOGL’s trailing-12-month net income margin of 22.46% is 674.9% higher than the 2.90% industry average. Its trailing-12-month ROCE of 25.33% is 671.6%% higher than the 3.28% industry average.
For the fiscal third quarter ended September 30, 2023, GOOGL’s revenues increased 11% year-over-year to $76.69 billion. The company’s operating income increased 24.6% year-over-year to $21.34 billion. Also, its net income rose 41.5% year-over-year to $19.69 billion. In addition, its EPS came in at $1.55, representing an increase of 46.2% year-over-year.
Street expects GOOGL’s revenue to increase 8.1% year-over-year to $305.69 billion for the year ending December 2023. Its EPS is expected to grow at 26% year-over-year to $5.74 for the same period. It surpassed EPS estimates in all four trailing quarters. The stock gained 39.6% over the past nine months to close the last trading session at $132.09.
It’s no surprise that GOOGL has an overall B rating, equating to a Buy in our POWR Ratings system. It has a B grade for Sentiment and Quality. It is ranked #3 in the same industry.
Beyond what is stated above, we’ve also rated GOOGL for Growth, Value, Momentum and Stability. Get all GOOGL ratings here.
Stock #1: Meta Platforms, Inc. (META)
META engages in the development of products that enable people to connect and share with friends and family through mobile devices, personal computers, virtual reality headsets, and wearables worldwide. It operates in two segments, Family of Apps and Reality Labs.
META’s trailing-12-month ROTA of 13.75% is significantly higher than the industry average of 1.15%. Its trailing-12-month net income margin of 23.42% is 708.1% higher than the industry average of 2.90%.
META’s revenue for the third quarter ended September 30, 2023, increased 23.2% year-over-year to $34.15 billion. The company’s income from operations increased 142.7% year-over-year to $13.75 billion. Its net income rose 163.5% year-over-year to $11.58 billion. Also, its EPS came in at $4.39, representing an increase of 167.7% year-over-year.
The consensus revenue estimate of $133.24 billion for the year ending December 2023 represents a 14.3% increase year-over-year. Its EPS is expected to grow at 66.4% year-over-year to $14.29 for the same period. It surpassed EPS estimates in three of four trailing quarters. META’s shares have gained 191.3% over the past year to close the last trading session at $329.19.
META’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It is ranked #2 in the same industry. It has an A grade for Quality and a B for Sentiment and Growth. To see additional META’s ratings for Value, Momentum and Stability, click here.
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GOOGL shares were trading at $134.70 per share on Tuesday morning, up $2.61 (+1.98%). Year-to-date, GOOGL has gained 52.67%, versus a 18.72% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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