The internet industry is expected to grow due to rapid digitization, an increasing global user base, and technological advancements such as 5G networks and artificial intelligence. Therefore, it could be wise to own fundamentally strong internet stocks Meta Platforms, Inc. (META), Yelp Inc. (YELP) and Liquidity Services, Inc. (LQDT).
According to DataReportal, 5.30 billion people worldwide were using the internet at the start of fourth quarter 2023, which accounts for 65.7% of the world’s total population. Internet users are also increasing, with the most recent data indicating that the world’s connected population increased by more than 189 million people in the year leading up to October 2023.
Moreover, the global wireless internet services market is projected to reach $896.88 billion by 2028, with a 6.6% 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. 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) 24.8% gains over the past nine months.
Let’s delve deeper into the fundamentals of the featured stocks.
Meta Platforms, Inc. (META)
META develops 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 1.24%. Its trailing-12-month net income margin of 23.42% is 629% higher than the industry average of 3.21%.
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 $150.71 billion for the year ending December 2024 represents a 13% increase year-over-year. Its EPS is expected to grow at 20.9% year-over-year to $17.39 for the same period. It surpassed EPS estimates in three of four trailing quarters. META’s shares have gained 187.8% over the past year to close the last trading session at $346.29.
META’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
META also has an A grade for Quality and a B for Growth and Sentiment. It is ranked #2 out of 55 stocks in the B-rated Internet industry. Click here for the additional POWR Ratings for Value, Stability and Momentum for META.
Yelp Inc. (YELP)
YELP operates a platform that connects consumers with local businesses in the United States and internationally. The company’s platform covers various local business categories, including restaurants, shopping, beauty and fitness, health, and other categories, as well as home, local, auto, professional, pets, events, real estate, and financial services.
YELP’s trailing-12-month ROTA of 8.95% is 622.1% higher than the 1.24% industry average. Its trailing-12-month asset turnover ratio of 1.27x is 146% higher than the 0.52x industry average.
YELP’s net revenue for the third quarter that ended September 30, 2023, increased 11.7% year-over-year to $345.12 million. Its net income attributable to common stockholders and net income per share attributable to common stockholders came in at $58.22 million and $0.79, up 539.2% and 507.7% year-over-year.
Moreover, the company’s adjusted EBITDA rose 30.5% over the prior-year quarter to $96.47 million.
Street expects YELP’s revenue to increase 8.9% year-over-year to $1.46 billion for the year ending December 2024. Its EPS is expected to come in at $3.34 for the same period. It surpassed EPS estimates in all four trailing quarters. Shares of YELP have gained 69.6% over the past year to close the last trading session at $46.37.
YELP’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 first in the same industry. It has an A grade for Quality and a B for Value. To see additional YELP’s ratings for Stability, Momentum, Sentiment and Growth, click here.
Liquidity Services, Inc. (LQDT)
LQDT provides e-commerce marketplaces, self-directed auction listing tools, and value-added services in the United States and internationally. It operates through four segments: GovDeals; Retail Supply Chain Group (RSCG); Capital Assets Group (CAG); and Machinio.
LQDT’s trailing-12-month gross profit margin of 54.74% is 80.8% higher than the 30.28% industry average. Its trailing-12-month levered FCF margin of 10.07% is 68.4% higher than the industry average of 5.98%.
LQDT’s revenue increased 6.3% year-over-year to $79.96 million in the fiscal fourth quarter that ended September 30, 2023. The company’s non-GAAP adjusted net income was $8.37 million, representing a 31.3% year-over-year increase.
Its adjusted non-GAAP net income per share came in at $0.26, up 36.8% year-over-year. Also, its non-GAAP adjusted EBITDA grew 3.7% from the prior-year quarter to $12.76 million.
Analysts expect LQDT’s revenue to increase 7.3% year-over-year to $337.49 million for the year ending September 2024. Its EPS is expected to grow marginally year-over-year to $0.94 for the same period. It surpassed EPS estimates in all four trailing quarters. The stock has gained 21.8% over the past year to close the last trading session at $17.13.
It’s no surprise that LQDT has an overall A rating, equating to a Strong Buy in our POWR Ratings system. It has an A grade for Quality and a B for Stability. It is ranked first out of 28 stocks in the Internet - Services industry.
Beyond what is stated above, we’ve also rated LQDT for Growth, Value, Sentiment and Momentum. Get all LQDT ratings 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.
META shares were trading at $344.69 per share on Wednesday morning, down $1.60 (-0.46%). Year-to-date, META has declined -2.62%, versus a -1.21% 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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