The internet industry is expanding due to increased demand, smart infrastructure investment, widespread smartphone adoption, and the emergence of new technologies such as cloud computing and artificial intelligence, which improve accessibility and opportunities for businesses and individuals.
Given the industry’s growth prospects, investors could consider buying fundamentally sound internet stocks Netflix, Inc. (NFLX), VeriSign, Inc. (VRSN) and 8×8, Inc. (EGHT) for solid returns.
According to Statista, about 92% of the US population accessed the internet in 2023, up from about 75% in 2012. The surge in internet usage is largely due to the widespread availability of smartphones, the expansion of internet infrastructure, and the growing importance of online services and digital communication.
The global broadband internet services market is expected to grow to $898.71 billion in 2031 at a CAGR of 8.8%. Moreover, the global wireless internet services market is projected to reach $921.97 billion by 2027, with a 7% CAGR. Also, advancements in technology, such as 5G networks, are expected to drive market growth further.
Investors’ interest in internet stocks is evident from the First Trust Dow Jones Internet Index Fund’s (FDN) 10.4% gains over the past six months and 25.4% over the past nine months.
Considering these conducive trends, let’s look at the fundamentals of the three internet stocks.
Netflix, Inc. (NFLX)
NFLX provides entertainment services. It offers TV series, documentaries, feature films, and mobile games across various genres and languages. The company provides members the ability to receive streaming content through a host of internet-connected devices, including TVs, digital video players, television set-top boxes, and mobile devices.
NFLX’s trailing-12-month ROTA of 9.14% is 646.9% higher than the industry average of 1.22%. Its trailing-12-month asset turnover ratio of 0.67x is 31% higher than the industry of 0.52x.
For the third quarter that ended September 30, 2023, NFLX’s revenue increased 7.8% year-over-year to $8.54 billion. Its operating income rose 25% over the prior year quarter to $1.92 billion. In addition, the company’s net income and EPS increased 20% and 20.3% year-over-year to $1.68 billion and $3.73, respectively.
Analysts expect NFLX’s revenue to increase 6.4% year-over-year to $33.63 billion for the year ending December 2023. Its EPS is expected to grow 22.7% year-over-year to $12.21 for the same period. The stock has gained 55.1% over the past year to close the last trading session at $473.97.
NFLX’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
NFLX also has a B grade for Growth and Quality. It is ranked #7 out of 57 stocks in the Internet industry. Click here for the additional POWR Ratings for Value, Sentiment, Stability and Momentum for NFLX.
VeriSign, Inc. (VRSN)
VRSN provides domain name registry services and internet infrastructure that enables internet navigation for various recognized domain names. The company ensures the security and, stability, and resiliency of internet infrastructure and services.
VRSN’s trailing-12-month net income margin of 47.61% is significantly higher than the 8.24% industry average. Its trailing-12-month EBIT margin of 66.79% is significantly higher than the 4.69% industry average.
VRSN’s revenues for the third quarter ended September 30, 2023, increased 5.4% year-over-year to $376.30 million. Its operating income came in at $254.30, up 7.4% year-over-year. The company’s net income rose 11.2% over the prior-year quarter to $188.50 million. In addition, its EPS came in at $1.83, representing an increase of 15.8% year-over-year.
Street expects VRSN’s revenue to increase 4.8% year-over-year to $1.49 billion for the year ending December 2023. Its EPS is expected to grow 15.5% year-over-year to $7.21 for the same period. It surpassed EPS estimates in all four trailing quarters. The stock has gained 6.2% over the past year to close the last trading session at $212.20.
VRSN’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
It is ranked #8 out of 27 stocks in the Internet - Services industry. It has an A grade for Quality and a B for Stability. To see additional VRSN’s ratings for Growth, Value, Momentum, and Sentiment, click here.
8×8, Inc. (EGHT)
EGHT provides voice, video, chat, contact center, and enterprise-class application programmable interface (API) Software-as-a-Service solutions for small and mid-size businesses, mid-market and larger enterprises, government agencies, and other organizations worldwide.
EGHT’s trailing-12-month gross profit margin of 69.54% is 42.9% higher than the 48.67% industry average. Its trailing-12-month levered FCF margin of 14.50% is 76% higher than the 8.24% industry average.
For the fiscal first quarter ended June 30, 2023, EGHT’s total revenue came in at $185 million. Its non-GAAP operating profit increased 161.9% year-over-year to $23.76 million. The company’s non-GAAP net income increased 181.8% year-over-year to $17.13 million.
In addition, its adjusted EBITDA rose 75% year-over-year to $30.51 million. Also, its net income per share came in at $0.14, representing an increase of 180% from the previous-year quarter.
EGHT’s revenue is expected to come in at $737.85 million for the year ending March 2024. Its EPS is expected to grow 43.6% year-over-year to $0.47 for the same period. It has surpassed EPS estimates in three of four trailing quarters. Shares of EGHT has gained 31.5% over the past month to close the last trading session at $3.09.
It’s no surprise that EGHT has an overall B rating, equating to a Buy in our POWR Ratings system. It has an A grade for Value and a B for Growth. It is ranked #5 in the same industry.
Beyond what is stated above, we’ve also rated EGHT for Sentiment, Momentum, Quality and Stability. Get all EGHT ratings 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.
NFLX shares were trading at $471.25 per share on Friday morning, down $2.72 (-0.57%). Year-to-date, NFLX has gained 59.81%, versus a 20.53% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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