Despite macroeconomic headwinds, the internet industry thrives with accelerated digitalization, expanding smart infrastructure, and government initiatives. Given the favorable industry trends, keeping an eye on eBay Inc. (EBAY) could be wise. However, Snap Inc. (SNAP) could be best avoided now because of its weak fundamentals.
Before diving deeper into the fundamentals of these stocks, let’s discuss why the Internet industry is well-positioned for growth.
The pandemic accelerated the adoption of digital services, leading to increased internet usage, particularly in e-commerce, online learning, and remote work. This heightened internet penetration has created global opportunities for companies offering products and services online.
Despite concerns about high-interest rates and economic uncertainty, holiday sales are anticipated to stay strong. According to an ICSC report, holiday spending is projected to reach $1.6 trillion, with three-fourths of shoppers planning to make online purchases.
In 2023, Statista reported 5.18 billion global internet users, connecting two-thirds of the world's population. The United States, a key online market, has over 90% internet access and hosts leading companies.
Additionally, wireless technology fuels the global digital revolution, boosting productivity and reducing costs. The global wireless internet services market is projected to reach $921.97 billion by 2027, growing at a 7% CAGR.
Furthermore, the increasing use of IoT-connected devices and the demand for ultra-low latency to enhance user experiences propel the adoption of 5G services, positively impacting the internet sector. The global 5G infrastructure market is anticipated to reach $348.76 billion by 2030, growing at a remarkable CAGR of 45.2%.
Considering these trends, let’s take a look at the fundamentals of the featured Internet stocks.
Stock to Hold:
eBay Inc. (EBAY)
EBAY operates marketplace platforms that connect buyers and sellers in the United States and internationally. The company’s marketplace platform includes its online marketplace at eBay.com and the eBay suite of mobile apps. Its platforms enable users to list, buy, and sell various products.
In terms of the trailing-12-month gross profit margin, EBAY’s 72.13% is 102.3% higher than the 35.56% industry average. Its 4.80% trailing-12-month Capex/Sales is 53.5% higher than the 3.13% industry average. However, the stock’s 0.50x trailing-12-month asset turnover ratio is 49.9% lower than the 1x industry average.
For the fiscal third quarter that ended September 30, 2023, EBAY’s net revenues increased 5% year-over-year to $2.50 billion. Its gross profit rose 3.6% year-over-year to $1.80 billion. Also, its non-GAAP EPS rose 3% over the prior year’s quarter to $1.03. However, its non-GAAP net income from continuing operations declined 1.3% year-over-year to $545 million.
Street expects EBAY’s EPS and revenue for the fiscal quarter ending March 31, 2024, to increase 3.5% and 1% year-over-year to $1.15 and $2.53 billion, respectively. It surpassed the consensus EPS estimate in each of the trailing four quarters. Over the past three months, the stock has declined 6.3% to close the last trading session at $41.48.
EBAY’s POWR Ratings reflect an uncertain outlook. It has an overall rating of C, equating to a Neutral in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a C grade for Value, Momentum, Stability, and Sentiment. Within the Internet industry, it is ranked #24 out of 57 stocks. In addition to the POWR Ratings stated above, click here to see EBAY’s additional POWR Ratings for Growth and Quality.
Stock to Sell:
Snap Inc. (SNAP)
SNAP operates as a technology company in North America, Europe, and internationally. The company offers Snapchat, a visual messaging application with various tabs, such as camera, visual messaging, snap map, stories, and spotlight, that enable people to communicate visually through short videos and images.
In terms of the trailing-12-month levered FCF margin, SNAP's 5.34% is 30% lower than the 7.64% industry average.
SNAP’s revenue for the third quarter that ended September 30, 2023, came in at $1.19 billion. Its operating loss narrowed 12.7% year-over-year to $380.06 million. Its adjusted EBITDA came in at $40.09 million, down 44.8% over the prior-year quarter.
Moreover, the company's non-GAAP net loss widened 2.4% year-over-year to $368.26 million. And its non-GAAP net loss per share decreased 75% year-over-year to come in at $0.02.
Street expects SNAP’s EPS for the quarter ending December 31, 2023, to decrease 61.1% year-over-year to $0.05. Over the past month, the stock has gained 36.1% to close the last trading session at $14.60.
SNAP’s weak prospects are reflected in its POWR Ratings. It has an overall D rating that translates to Sell in our POWR Ratings system.
It has a D grade for Stability, Sentiment, and Quality. It is ranked #54 in the same industry. To access SNAP’s grades for Growth, Value and Momentum, 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.
SNAP shares rose $0.14 (+0.96%) in premarket trading Wednesday. Year-to-date, SNAP has gained 64.92%, versus a 21.17% 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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