The rapid growth of the internet industry is driven by the increasing demand for internet services for work, communication, and entertainment, encouraging innovation and investment in infrastructure.
Therefore, it could be wise for investors to buy fundamentally sound internet stock Netflix, Inc. (NFLX) now. However, I think it would be wise to wait for a better entry point in Zillow Group, Inc. (Z) for the reasons discussed.
According to Statista, about 92% of the US population accessed the internet in 2023, up from about 75% in 2012. The widespread availability of smartphones and the growing relevance of online platforms for communication, entertainment, and commerce are contributing to the rise in internet usage.
Moreover, the global wireless internet services market is projected to reach $921.97 billion by 2027, with a 7% CAGR. This growth can be attributed to the increasing adoption of smartphones and other connected devices and the rising demand for high-speed internet connectivity across various industries such as healthcare, retail, and transportation. Additionally, advancements in technology, such as 5G networks, are expected to further drive market growth.
Investors’ interest in internet stocks is evident from the Invesco NASDAQ Internet ETF’s (PNQI) 18.7% gains over the past six months and 22% over the past nine months.
Considering these conducive trends, let’s look at the fundamentals of the above-mentioned Internet stocks.
Stock to Buy:
Netflix, Inc. (NFLX)
NFLX provides entertainment services. It offers TV series, documentaries, feature films, and mobile games across various genres and languages. The company provides members the ability to receive streaming content through a host of internet-connected devices, including TVs, digital video players, television set-top boxes, and mobile devices.
NFLX’s trailing-12-month ROTA of 9.14% is 59.6% higher than the industry average of 1.22%. Its trailing-12-month asset turnover ratio of 0.67x is 32.8% higher than the industry of 0.51x.
For the third quarter that ended September 30, 2023, NFLX’s revenue increased 7.8% year-over-year to $8.54 billion. Its operating income rose 25% over the prior year quarter to $1.92 billion. In addition, the company’s net income and EPS increased 20% and 20.3% year-over-year to $1.68 billion and $3.73, respectively.
Analysts expect NFLX’s revenue to increase 6.3% year-over-year to $33.62 billion for the year ending December 2023. Its EPS is expected to grow 22.4% year-over-year to $12.18 for the same period. The stock has gained 49.9% over the past year to close the last trading session at $448.65.
NFLX’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.
NFLX also has a B grade for Growth, Sentiment and Quality. It is ranked #8 out of 59 stocks in the Internet industry. Click here for the additional POWR Ratings for Value, Stability and Momentum for NFLX.
Stock to Hold:
Zillow Group, Inc. (Z)
Z operates real estate brands in the United States through mobile applications and websites. The company's segments are Internet, Media & Technology (IMT), Mortgages, and Homes.
Z’s trailing-12-month asset turnover ratio of 0.29x is 120.2% higher than the industry average of 0.13x. Its trailing-12-month CAPEX/Sales of 6.77% is 61.1% higher than the industry average of 4.20%.
Z’s revenue for the fiscal third quarter that ended September 30, 2023, increased 2.7% year-over-year to $496 million. Its total current liabilities came in at $3.61 billion for the period that ended September 30, 2023, compared to $3.60 billion for the period that ended December 31, 2022.
However, the company’s net loss and loss per share came in at $28 million and $0.12. Also, its loss from continuing operation increased 3.9% year-over-year to $53 million.
The consensus revenue estimate of 2.09 billion for the year ending December 2024 represents a 8.9% increase year-over-year. Its EPS is expected to grow 5.5% year-over-year to $1.34 for the same period. It surpassed EPS estimates in all four trailing quarters. Z’s shares have gained 8.7% over the past year to close the last trading session at $40.08.
Z POWR Ratings reflect this optimistic outlook. The stock has an overall rating of C, equating to a Neutral in our proprietary rating system.
It has a C grade for Value, Quality, and Momentum. It is ranked #33 in the same industry. To see Z’s rating for Growth, Sentiment and Stability, click here.
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.
NFLX shares were trading at $458.75 per share on Wednesday morning, up $10.10 (+2.25%). Year-to-date, NFLX has gained 55.57%, versus a 19.20% 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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