Surging internet penetration globally and growing demand for digital activities such as social media, online shopping, video and audio streaming, and online learning have created several growth opportunities for internet service providers. According to Statista, among the largest online markets in the world, the United States ranks third with over 311 million internet users nationwide.
The social media market is expected to reach $413.16 billion by 2028, growing at a CAGR of 13.2% during the forecast period (2024-2028). The market growth can be attributed to e-commerce integration, influencer marketing, the proliferation of mobile devices, and the adoption of advanced technologies like augmented reality (AR) and virtual reality (VR).
Moreover, investors’ interest in Internet stocks is evident from the Invesco NASDAQ Internet ETF’s (PNQI) 33.2% gains over the past six months.
Against this backdrop, let’s compare two Internet stocks, Snap Inc. (SNAP) and trivago N.V. (TRVG), to determine which is a better stock to own in May.
The Case for Snap Inc. Stock
With a $24.97 billion market cap, Snap Inc. (SNAP) is a technology company operating 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.
SIRI’s stock has plunged 14.2% over the past three months to close the last trading session at $14.49.
On March 26, 2024, SNAP partnered with Integral Ad Science (IAS), a leading global media measurement and optimization platform, to provide advertisers with increased transparency across their Snapchat campaigns through IAS's AI-driven Total Media Quality (TMQ) Brand Safety and Suitability Measurement product.
SNAP’s forward non-GAAP PEG of 2.85x is 122.8% higher than the 1.28x industry average. Also, the stock’s forward EV/EBITDA of 57.23x is 645.5% higher than the industry average of 7.68x. In terms of forward EV/Sales, it is trading at 4.64x, 153% higher than the industry average of 1.83x.
SNAP’s trailing-12-month EBIT margin and net income margin of negative 26.98% and negative 26.99% compare to the industry averages of 8.21% and 2.71%, respectively. Likewise, the stock’s levered FCF margin of 4.47% is 46.5% lower than the industry average of 8.35%.
In the fiscal first quarter that ended March 31, 2024, SNAP’s revenue increased 20.8% year-over-year to $1.20 billion. However, the company reported an operating loss of $333.23 million. Its net loss came in at $305.09 million. Also, its free cash flow was $37.90 million, up 63.4% from the previous year’s period.
Analysts expect SNAP’s revenue for the fiscal year (ending December 2024) to increase 16.3% year-over-year to $5.36 billion. The company’s EPS for the current year is expected to grow 171.3% year-over-year to $0.24.
SNAP’s bleak fundamentals are reflected in its POWR Ratings. The stock has an overall D rating, equating to Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has a D grade for Quality and Stability. Within the Internet industry, SNAP is ranked #51 out of 53 stocks.
In addition to the POWR Ratings I’ve just highlighted, you can see SNAP’s ratings for Growth, Momentum, Value, and Sentiment here.
The Case for trivago N.V. Stock
Valued at $177.68 million by market capitalization, trivago N.V. (TRVG) runs a hotel and accommodation search platform globally. It operates through two segments: Premium and Ad-Supported. The company is based in Düsseldorf, Germany.
TRVG’s stock has gained 4.1% over the past three months to close the last trading session at $2.55.
TRVG’s forward EV/Sales of 0.16x is 91.5% lower than the 1.83x industry average. Also, the stock’s forward Price/Sales of 0.34x is 72.2% lower than the industry average of 1.21x. In terms of forward Price/Book, it is trading at 1.30x, 36.5% lower than the industry average of 2.04x.
TRVG’s trailing-12-month gross profit margin of 97.53% is 98.52%% higher than the industry average of 49.13%. Likewise, its trailing-12-month ROTC of 5.73% is 74.5% higher than the industry average of 3.28%.
For the fourth quarter that ended December 31, 2023, TRVG reported revenue of €91.70 million ($98.26 million). Its operating income and net income came in at €4.41 million ($4.73 million) and €2.50 million ($2.68 million), respectively. Its total assets stood at €325.07 million ($348.36 million) as of December 31, 2023.
Also, as of December 31, 2023, the company’s current liabilities reduced to €35.99 million ($38.57 million), compared to €49.62 million ($53.17 million) as of December 31, 2022.
Street expects TRVG’s revenue for the year ending December 2024 to increase 1.6% year-over-year to $529.92 million. Similarly, the company’s revenue for the fiscal year 2025 is expected to grow 7.6% year-over-year to $570.25 million.
TRVG’s POWR Ratings reflect its robust outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
TRVG has an A grade for Quality and a B for Sentiment and Value. It is ranked #5 in the same industry.
Click here for the additional POWR Ratings for TRVG (Growth, Stability, and Momentum).
Is Snap (SNAP) or trivago (TRVG) the Better Internet Stock to Own in May?
The internet industry is booming due to its transformative influence on various aspects of life, including work, communication, shopping, and leisure. With increasing digitization initiatives across various sectors worldwide, the industry is well-poised to witness significant expansion.
Leading internet companies SNAP and TRVG stand to capitalize on bright industry growth prospects. However, TRVG’s higher profitability, lower valuation, and promising near-term outlook favor it as the better internet stock pick in May.
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.
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 were trading at $15.06 per share on Tuesday morning, up $0.57 (+3.93%). Year-to-date, SNAP has declined -11.05%, versus a 7.45% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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