In this piece, I evaluated two internet stocks, Snap Inc. (SNAP) and Expedia Group, Inc. (EXPE), to determine which has better upside potential. Based on a fundamental comparison of these stocks, I find EXPE a better pick for reasons explained throughout this article.
The rapid increase in Internet usage has led to the growth of Internet services companies. There were 311.3 million internet users in the United States in January 2023. At the start of 2023, the United States’ internet penetration rate was 91.8% of the total population.
SNAP’s EPS in the first quarter was $0.02 above analyst estimates. However, its revenue missed the consensus estimate by 2.2%. On the other hand, EXPE’s EPS was $0.23 below the consensus estimate, while its revenue came slightly above analyst estimates.
SNAP’s CEO Evan Spiegel said, “Our community continues to grow, reaching 383 million daily active users in Q1, and we are working to deepen engagement with our content platform while building innovative new features and services like My AI.”
“We are working to accelerate our revenue growth, and we are using this opportunity to make significant improvements to our advertising platform to help drive increased return on investment for our advertising partners,” he added. SNAP’s global average daily active users (DAU) increased 15% year-over-year to 383 million. On the other hand, its global average revenue per user (ARPU) declined 19% year-over-year to $2.58.
EXPE’s Vice Chairman and CEO Peter Kern said, “The first quarter saw strong travel demand driven by increasing international travel, major city travel, and the reopening in Asia. We invested into that demand driving record lodging bookings and continued strength in app usage and loyalty member counts. We also saw strong growth in B2B driven by an expanding partner base and growth from our existing partners.”
“Our performance was enhanced by greater testing velocity and accelerating deployment of AI and ML, including our recent integration of ChatGPT into our iOS experience,” he added. The company repurchased $600 million in shares, creating shareholder value. Its total gross booking increased 20% year-over-year to $29.40 billion, while its B2B revenue rose 55% year-over-year to $668 million.
SNAP did not provide official guidance for revenue and adjusted EBITDA for the second quarter. However, in a letter to its shareholders, its “internal forecast” for revenue in the second quarter was $1.04 billion, representing a 6% year-over-year decline. The forecast was below analyst estimates of $1.10 billion.
EXPE reiterated its fiscal 2023 outlook of achieving double-digit top-line growth with margin expansion. It expects its year-over-year top-line growth to moderate in the short-term to mid-single digits in the second quarter.
Gordon Haskett upgraded its rating for EXPE from “Hold” to “Buy,” while Oppenheimer raised its price target from $120 to $135 per share in February 2023 and gave it an Outperform rating.
When it comes to price performance, EXPE is the clear winner. EXPE stock has delivered positive returns in all time frames. In addition, EXPE’s stock has gained 9.9% over the past nine months, compared to SNAP’s 12.6% decline.
Here are the reasons I think EXPE could perform better in the near term:
Recent Financial Results
SNAP’s revenue for the first quarter ended March 31, 2023, declined 7% year-over-year to $988.61 million. Its operating loss widened 34.5% year-over-year to $365.26 million. The company’s adjusted EBITDA decreased 98.7% year-over-year to $813 thousand. Also, its free cash flow declined 3% year-over-year to $103.47 million.
Additionally, its non-GAAP net income came in at $19.97 million, compared to a non-GAAP net loss of $39.29 million in the year-ago quarter. Its non-GAAP EPS came in at $0.01, compared to a non-GAAP loss per share of $0.02 in the prior-year quarter.
For the fiscal first quarter ended March 31, 2023, EXPE’s revenue rose 18.5% year-over-year to $2.67 billion. The company’s net cash provided by operating activities increased 6% over the prior-year quarter to $3.16 billion. Its free cash flow increased 3% year-over-year to $2.92 billion. Additionally, its adjusted EBITDA rose 7% year-over-year to $185 million.
Its adjusted net loss and loss per share narrowed 59.5% and 57.4% year-over-year to $30 million and $0.20, respectively.
Expected Financial Performance
Analysts expect SNAP’s EPS and revenue for fiscal 2023 to decline 58.4% and 1.3% year-over-year to $0.07 and $4.54 billion, respectively. On the other hand, its EPS and revenue for fiscal 2024 are expected to increase 236.4% and 14.8% year-over-year to $0.24 and $5.21 billion, respectively. Its EPS for the quarter ending June 30, 2023, is expected to remain negative, while its revenue for the same quarter is expected to decline 5.3% year-over-year to $1.05 billion.
For fiscal 2023 and 2024, EXPE’s EPS is expected to increase 37.8% and 24.7% year-over-year to $9.36 and $11.67. Its fiscal 2023 and 2024 revenue is expected to increase 10.8% and 8.9% year-over-year to $12.92 billion and $14.07 billion, respectively. Its EPS and revenue for the quarter ending June 30, 2023, are expected to increase 18.1% and 6% year-over-year to $2.31 and $3.37 billion, respectively.
Profitability
EXPE’s trailing-12-month revenue is 2.7 times what SNAP generates. EXPE is more profitable, with an EBITDA margin and net income margin of 11.40% and 2.72%, compared to SNAP’s negative 24.31% and 30.89%, respectively. Also, EXPE’s Return on Equity of 9.51% compares to SNAP’s negative 45.55%.
Valuation
In terms of forward EV/Sales, EXPE is currently trading at 1.33x, 64.8% lower than SNAP’s 3.78x. EXPE’s forward EV/EBITDA of 6.32x is 96.2% lower than SNAP’s 167.55x.
Thus, EXPE is relatively more affordable.
POWR Ratings
SNAP has an overall rating of D, which equates to Sell in our proprietary POWR Ratings system. On the other hand, EXPE has an overall rating of B, translating to a Buy. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. SNAP has a C grade for Value, in sync with its mixed valuation. EXPE’s discounted valuation justifies its B grade for Value.
SNAP has a C grade for Quality, consistent with its mixed profitability. On the other hand, EXPE has an A grade for Quality, in sync with the company’s high profitability.
Of the 58 stocks in the Internet industry, SNAP is ranked #53, while EXPE is ranked #5 in the same industry.
Beyond what we’ve stated above, we have also rated both stocks for Growth, Momentum, Stability, and Sentiment. Click here to view SNAP’s ratings. Get all the ratings of EXPE here.
The Winner
Internet companies are benefiting strongly from the growing penetration and usage of the Internet. SNAP’s revenue missed analyst estimates in the first quarter, and its average revenue per user dipped 19% year-over-year. Moreover, the company’s internal forecast for revenue in the second quarter is lower than analyst estimates.
Amid an uncertain macroeconomic environment, companies like SNAP are under pressure due to the difficult online ad market. On the other hand, the travel company EXPE is benefitting from the high demand for travel despite concerns about an economic downturn. With inflation easing considerably from last year’s highs, bookings are expected to grow. EXPE expects double-digit revenue growth and margin expansion in fiscal 2023.
Considering these factors, EXPE could be a better choice than SNAP.
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?
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SNAP shares fell $0.05 (-0.47%) in premarket trading Tuesday. Year-to-date, SNAP has gained 19.33%, versus a 15.35% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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