In this article, I have evaluated two prominent internet stocks, Pinterest, Inc. (PINS) and CarGurus, Inc. (CARG), to determine which could be a better pick this month. I believe CARG is the better investment for reasons explained throughout this piece.
The increasing integration of digital technology across various business sectors is expected to lead to a substantial boost in internet penetration in the near future. The rise in virtual communication, remote work tools, e-commerce, and streaming services is opening up unprecedented opportunities for rapid growth in the internet industry.
Moreover, the wireless connectivity market is witnessing growth fueled by the increasing adoption of Bluetooth, Wi-Fi, and GPS technologies. The rising demand for cost-effective smart wireless sensors further boosts the market.
ReportLinker predicts that the global wireless internet services market will reach $921.97 billion by 2027, expanding at a CAGR of 7%.
PINS has declined 4.1% over the past three months, while CARG has gained 8.9%. CARG is a clear winner in year-to-date price performance, with 60.2% returns compared to PINS’ gain of 14.1%. Moreover, CARG has soared 32.7% over the past six months, whereas PINS has gained 5%.
Here are the reasons why I think CARG could perform better in the near term:
Latest Developments
During the fiscal first quarter, PINS repurchased 2.8 million shares of our Class A common stock for $72 million. $428 million remains available for repurchases under the company’s $500 million authorization.
On June 15, PINS and Westbrook Inc announced a partnership to create branded content for Halloween and the winter holiday season. As the exclusive creative partner of PIN’s holiday content series in late 2023, Westbrook’s branded partnerships division, Westbrook Media, will create compelling content for advertisers to inspire people on PINS looking for the most popular holiday categories, from Halloween costumes to home decor to recipes.
On June 26, CARG announced the release of the CarGurus ChatGPT plugin to help shoppers discover their ideal car match more efficiently. The tool integrates the power of generative artificial intelligence (AI) to enhance automotive search, providing shoppers with greater personalization and ease when exploring CarGurus’ extensive listings platform.
On June 15, CARG marked a milestone year in collaboration with over 2,250 dealer partners who fueled the success of its Digital Deal solution as one of the company’s fastest-growing offerings.
Launched last year, the digital retail innovation responds to dealers’ desire to meet the needs of today’s shoppers with greater efficiency, delivering leads that are up to 5.3x more likely to close at 2x higher customer satisfaction rates.
Recent Financial Results
For the fiscal first quarter that ended March 31, 2023, PINS’ revenues increased 4.8% year-over-year to $602.58 million, while its loss from operations stood at $243.69 million, up significantly from the year-ago quarter. The company’s non-GAAP net income and non-GAAP net income per share stood at $57.70 million and $0.08, down 16.4% and 20% year-over-year, respectively.
Conversely, during the fiscal first quarter that ended March 31, 2023, CARG’s marketplace revenue increased 2.4% year-over-year to $167.13 million. The company’s net income and EPS came in at $16.13 million and $10, compared to a net loss and loss per share of $62.09 million and $0.53 in the previous year’s quarter, respectively.
Expected Financial Performance
PINS’ revenue grew at a CAGR of 32.6% over the past three years. The company’s EPS is expected to amount to $0.12 in the current quarter and $0.80 in the current year. Its revenue is expected to come in at $695.69 billion in the current quarter and $3 billion in the current year.
On the contrary, CARG’s revenue and EPS have grown at a CAGR of 33.6% and 48.1% over the past three years. The company’s EPS is expected to amount to $0.23 in the current fiscal quarter and $0.95 in the current year. Its revenue is expected to come in at $230.37 million in the current quarter and $943.02 million in the current year.
Valuation
In terms of forward non-GAAP P/E, CARG is currently trading at 23.61x, which is lower than PINS’, which is trading at 34.42x. CARG’s forward P/S multiple of 2.70 is lower than PINS’ 6.31.
Thus, CARG is relatively affordable.
Profitability
CARG’s trailing-12-month net income and EBIT margins of 18.68% and 6.59% are higher than PINS’ negative 10.58% and 10.93%. Furthermore, CARG’s trailing-12-month asset turnover ratio of 1.46x is higher than PINS’ 0.79x.
Hence, CARG is more profitable.
POWR Ratings
PINS has an overall rating of C, which equates to a Neutral in our proprietary POWR Ratings system. Conversely, CARG has an overall rating of B, translating to a Buy. The POWR Ratings are calculated considering 118 different factors, each weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. PINS has a grade of C for Value. While its forward non-GAAP PEG multiple of 1.30 is 13.7% lower than the industry average of 1.51, its trailing-12-month EV/Sales multiple of 5.78 is 216.4% higher than the industry average of 4.79.
On the other hand, CARG has a grade of B for Value. Its forward non-GAAP PEG and trailing-12-month EV/Sales multiples of 1.31 and 1.62 are 13.1% and 11.6% lower than the respective industry averages of 1.51 and 1.83.
In the 58-stock Internet industry, PINS is ranked #25, while CARG is ranked #11.
Beyond what we’ve stated above, we have also rated both stocks for Growth, Stability, Sentiment, and Quality. Click here to view PINS ratings. Access all CARG ratings here.
The Winner
The Internet industry is poised for a bright future, fueled by technological advancements and evolving consumer demands. Thus, both PINS and CARG stand to benefit significantly from these favorable market conditions.
However, considering PINS’ weak price performance, mixed financial performance, and elevated valuation multiples, it is evident that CARG presents a more compelling investment opportunity.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Internet industry here.
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CARG shares were trading at $22.30 per share on Thursday morning, down $0.15 (-0.67%). Year-to-date, CARG has gained 59.17%, versus a 20.71% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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