The pervasive impact of the internet is fundamentally transforming how we interact with our world, revolutionizing the dynamics of work, communication, e-commerce, and even our leisure activities. This increasing internet penetration in our daily lives creates a fertile ground for the companies operating in this space.
Given the solid backdrop, in this article, I have highlighted the fundamentals of two internet stocks, Amazon.com, Inc. (AMZN) and Groupon, Inc. (GRPN), with the aim to determine which one could be a better investment candidate.
As of October 2023, the global count of internet users stood at 5.30 billion, representing 65.7% of the world's population. Within this figure, 4.95 billion people, or 61.4% of the global population, were engaged as social media users.
Moreover, as a central hub for technological innovation and home to some of the world's foremost internet companies, the United States has witnessed a continual rise in its digital population for more than two decades. According to Statista, over 90% of Americans enjoy internet access, with a significant portion unable to envision life without it.
Given the increasing internet penetration, revenue in the global e-commerce market is projected to hit a substantial size of $2.93 trillion in 2023. It is further expected to achieve an impressive $4.70 trillion by 2028, demonstrating a CAGR of 9.9% over the period spanning 2023 to 2028.
Furthermore, in the transformed post-pandemic business landscape, the worldwide internet services market is anticipated to expand significantly to reach $916.50 billion by 2030, growing at an impressive CAGR of 8.2% during the forecasted period from 2022 to 2030.
Considering the favorable industry outlook, AMZN and GRPN should benefit from them. However, AMZN appears to have outperformed GRPN in terms of price performance by surging 70% year-to-date compared to GRPN’s 8.9% year-to-date gains.
In addition, over the past month, AMZN’s shares surged 7.7% to close the last trading session at $142.81, while GRPN plunged 27.2% during the same period to close the last trading session at $9.35.
Keeping all these factors in mind, let us delve deeper into the fundamentals of the featured Internet stocks for a better perspective.
Recent Financial Results
AMZN’s total net sales for the fiscal third quarter (ended on September 30, 2023) increased 12.6% year-over-year to $143.08 billion, while its operating income rose significantly from the year-ago value to $11.19 billion. Moreover, the company’s net income and EPS came in at $9.88 billion and $0.94, up significantly from the prior-year quarter, respectively.
On the contrary, GRPN’s revenue declined 12.4% year-over-year to $126.47 million in the fiscal third quarter that ended September 30, 2023. While its gross profit declined 11.9% from the year-ago value to $110.68 million. In addition, the company’s net loss amounted to $40.81 million and $1.31 per share.
Past and Expected Financial Performance
AMZN’s revenue grew at a CAGR of 16.8% and 20.2% over the past three and five years, respectively. The consensus revenue estimate of $165.86 billion for the fiscal fourth quarter ending December 2023 reflects an 11.2% rise year-over-year. The consensus EPS estimate of $0.76 for the same period indicates a significant year-over-year improvement.
Conversely, GRPN’s revenue declined at a CAGR of 32.2% and 27.9% over the past three and five years, respectively. Analysts expect GRPN’s revenue for the fourth quarter (ending December 2023) to decline 10.8% year-over-year to $132.21 million, while its EPS for the current quarter is expected to remain negative.
Profitability
AMZN is more profitable, with a trailing-12-month net income margin of 3.62%, compared to GRPN’s negative 26.35%. Additionally, AMZN’s trailing-12-month EBIT margin and levered FCF margin are 13.35% and 6.57%, respectively, compared to GRPN’s negative EBIT margin of 9.66% and negative levered FCF margin of 16.05%.
POWR Ratings
AMZN has an overall rating of B, which equates to a Buy in our proprietary POWR Ratings system. Conversely, GRPN has an overall rating of C, translating to a Neutral. 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. AMZN’s A grade for Sentiment is in sync with its favorable analyst estimates for the to-be-reported quarter. On the other hand, GRPN’s F grade for Sentiment is justified by its negative analyst estimates for the to-be-reported quarter.
Moreover, AMZN has a B grade for Quality, justified by its higher-than-industry profitability. AMZN’s trailing-12-month cash per share of $4.80 is 98.6% higher than the industry average of $2.42. Also, its trailing-12-month asset turnover ratio of 1.21x is 21.4% higher than the industry average of 1.00x.
Conversely, GRPN has a C grade for Quality, justified by its mixed profitability. The stock’s trailing-12-month asset turnover ratio of 0.74x is 25.7% lower than the industry average of 1.00x. However, its trailing-12-month gross profit margin of 87.08% is 143.6% higher than the industry average of 35.74%.
Among the 58 stocks in the Internet industry, AMZN is ranked #14, while GRPN is ranked #48.
Beyond what we’ve stated above, we have also rated both stocks for Growth, Value, Momentum, and Stability. Click here to view AMZN’s ratings. Get all GRPN ratings here.
The Winner
The rise in the demand for online services serves as a pivotal driver for the thriving internet industry. As consumers increasingly adopt digital transactions, companies like AMZN and GRPN are strategically positioned to flourish, capitalizing on the convenience and accessibility provided by their online platforms.
However, after examining the fundamentals of both stocks, AMZN emerges as a more compelling investment candidate, supported by its solid financial performance, positive growth trajectory, and favorable analyst sentiment, especially when considering GRPN’s relatively weaker financials and lower profitability.
Our research shows that the odds of success increase when one invests in stocks with an overall rating of Strong Buy. View all the top-rated stocks in the Internet industry here.
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AMZN shares were trading at $144.54 per share on Friday afternoon, up $1.71 (+1.20%). Year-to-date, AMZN has gained 72.07%, versus a 19.05% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
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