Despite macroeconomic uncertainties, the internet industry is thriving thanks to the accelerating digitalization, expanding smart infrastructure, and ongoing government initiatives.
Considering these factors, it could be wise to buy internet stock Fiverr International Ltd. (FVRR). However, Snap Inc. (SNAP) could be best avoided, considering its weak fundamentals.
Before diving deeper into the fundamentals of these stocks, let’s discuss why the Internet industry is well-positioned for growth.
According to Statista, in 2023, there were 5.18 billion internet users globally, connecting about two-thirds of the world's population to the web. The United States is one of the world's largest online markets, with over 90% of Americans having internet access and hosting leading internet companies.
Furthermore, wireless technology accelerates the global digital revolution, enhancing productivity and cutting costs across sectors. The global wireless internet services market is projected to reach $921.97 billion by 2027, with a 7% CAGR.
On top of it, the rising use of IoT-connected devices and the demand for ultra-low latency for advanced user experiences are driving the adoption of 5G services, thereby boosting the prospects of the internet sector. The global 5G infrastructure market is expected to reach $348.76 billion by 2030, expanding at a CAGR of 45.2%.
Investors' interest in internet stocks is clear, with the Invesco NASDAQ Internet ETF (PNQI) gaining 49.9% over the past nine months.
Considering these trends, let’s take a look at the fundamentals of the two above-mentioned Internet stocks.
Stock to Buy:
Fiverr International Ltd. (FVRR)
Headquartered in Tel Aviv, Israel, FVRR operates an online marketplace worldwide. Its platform enables sellers to sell their services and buyers to buy them. The company's platform includes approximately 600 categories in ten verticals, including graphic design, digital marketing, writing, translation, video, and more.
On August 1, 2023, FVRR announced the launch of Fiverr Business Solutions, a comprehensive suite of professional solutions designed to serve mid-sized to enterprise businesses, including the addition of Fiverr Pro, a powerful end-to-end solution that offers advanced features for larger organizations.
FVRR’s Founder and CEO, Micha Kaufman, said, “Fiverr Certified is a natural progression towards that goal – producing beautifully simple product solutions to tedious business problems. Now businesses can be matched instantaneously with experts certified by our partners to get results they can trust.”
In terms of the trailing-12-month gross profit margin, FVRR’s 81.71% is 169.6% higher than the 30.31% industry average. Likewise, its 8.18% trailing-12-month levered FCF margin is 30.3% higher than the 6.28% industry average.
For the second quarter that ended June 30, FVRR’s revenue increased 5.1% year-over-year to $89.39 million. Its non-GAAP gross profit rose 7.1% year-over-year to $75.26 million.
For the same quarter, its non-GAAP net income and non-GAAP net income per share attributable to ordinary shareholders increased 311.4% and 308.3% year-over-year to $20.04 million and $0.49, respectively. In addition, its adjusted EBITDA rose 231.5% from the prior-year quarter to $15.27 million.
Analysts expect FVRR’s EPS and revenue for the quarter ended September 30, 2023, to increase 119.9% and 10.4% year-over-year to $0.46 and $91.09 million. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past month, the stock has declined 7.9% to close the last trading session at $22.15.
It’s no surprise that FVRR has an overall rating of B, which translates to Buy in our proprietary POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Growth and a B for Quality. Within the 57-stock Internet industry, it is ranked #7 out of 57 stocks. To see FVRR’s Value, Momentum, Stability and Sentiment ratings, click here.
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 7.21% is 5.4% lower than the 7.62% industry average.
SNAP’s revenue for the second quarter that ended June 30, 2023, decreased 3.9% year-over-year to $1.07 billion. Its operating loss widened marginally year-over-year to $404.34 million. Its adjusted EBITDA loss came in at $38.48 million, compared to an adjusted EBITDA of $7.19 million.
Moreover, the company's non-GAAP net loss widened 11.6% year-over-year to $33 million. And its non-GAAP net loss per share came in at $0.02.
Street expects SNAP’s EPS for the quarter ending December 31, 2023, to remain negative. Likewise, its revenue for the fiscal year ending December 31, 2023, is expected to remain negative. Over the past three months, the stock has declined 26.5% to close the last trading session at $9.19.
SNAP’s weak prospects are reflected in its POWR Ratings. The stock 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 #53 in the same industry. To access SNAP’s grades for Growth, Value and Momentum, click here.
What To Do Next?
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SNAP shares were trading at $9.27 per share on Thursday morning, up $0.08 (+0.87%). Year-to-date, SNAP has gained 3.58%, versus a 9.68% 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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