Whether it be online shopping or social media, secular forces are propelling consumer internet businesses forward. Luckily for them, the market seems to believe there is still more growth ahead. This assumption has helped the industry stand firm over the past six months with a flat return while the S&P 500 shed 1.9%.

Nevertheless, investors should tread carefully as many internet companies pursue winner-take-all strategies, meaning losses can be hefty if their playbooks don’t pan out. Taking that into account, here is one internet stock poised to generate sustainable market-beating returns and two best left ignored.

Two Consumer Internet Stocks to Sell:

Snap (SNAP)

Market Cap: $14.07 billion

Founded by Stanford University students Evan Spiegel, Reggie Brown, and Bobby Murphy, and originally called Picaboo, Snapchat (NYSE: SNAP) is an image centric social media network.

Why Are We Cautious About SNAP?

1. Decision to emphasize platform growth over monetization has contributed to sluggish trends in its average revenue per user
2. Costs have risen faster than its revenue over the last few years, causing its EBITDA margin to decline by 5.2 percentage points
3. Earnings per share fell by 10.2% annually over the last three years while its revenue grew, showing its incremental sales were much less profitable

Snap is trading at $8.42 per share, or 21.9x forward EV/EBITDA. Dive into our free research report to see why there are better opportunities than SNAP.

Revolve (RVLV)

Market Cap: $1.43 billion

Launched in 2003 by software engineers Michael Mente and Mike Karanikolas, Revolve (NASDAQ: RVLV) is a fashion retailer leveraging social media and a community of fashion influencers to drive its merchandising strategy.

Why Are We Out on RVLV?

1. May need to improve its platform and marketing strategy as its 7.4% average growth in active customers underwhelmed
2. Concerning trends in both user engagement and monetization suggest its platform’s efficacy is declining as its average revenue per buyer fell by 4% annually
3. Performance over the past three years shows its incremental sales were much less profitable, as its earnings per share fell by 18.5% annually

Revolve’s stock price of $20 implies a valuation ratio of 18.8x forward EV/EBITDA. To fully understand why you should be careful with RVLV, check out our full research report (it’s free).

One Consumer Internet Stock to Watch:

Yelp (YELP)

Market Cap: $2.46 billion

Founded by PayPal alumni Jeremy Stoppelman and Russel Simmons, Yelp (NYSE: YELP) is an online platform that helps people discover local businesses through crowd-sourced reviews.

Why Could YELP Be a Winner?

1. Platform is difficult to replicate at scale and leads to a best-in-class gross margin of 91.2%
2. Highly efficient business model is illustrated by its impressive 25.7% EBITDA margin, and its operating leverage amplified its profits over the last few years
3. Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends, and its rising cash conversion increases its margin of safety

At $38.20 per share, Yelp trades at 7.2x forward EV/EBITDA. Is now a good time to buy? Find out in our full research report, it’s free.

High-Quality Stocks for All Market Conditions

Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.

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