3 Internet Stocks to Buy From a Prospering Industry
The Zacks Internet - Content industry is benefiting from solid demand for digital offerings, as well as the increasing importance of video content and cloud-based applications. The proliferation of AI and rapid deployment of generative AI is benefiting industry players. Participants like Airbnb ABNB, Angi ANGI and Perion Network PERI are also expanding their presence across social media, display and connected TV, and search, driving top-line growth. However, the industry has been suffering from challenging macroeconomic conditions globally. Persistent inflation and higher interest rates are having a detrimental effect on ad spending, the primary revenue source for the industry participants. The ongoing war between Russia and Ukraine, as well as in Israel, has been an overhang on the prospects of the industry participants.
Industry Description
The Zacks Internet - Content industry comprises providers of video encoding platforms, personal services, Internet content and information, staffing and outsourcing services, publishing, capital markets, media-based, home service, digital insights and measurement, stock photo, video and music licensing, and online travel companies. The industry is witnessing a rapid change in consumer behavior and ongoing digitalization. Advertising is a major revenue source for industry participants. Therefore, these companies are trying to expand their digital presence to win customers. They are also expanding their presence across social media, display and connected TV, and search. Apart from the United States, a number of companies in this industry are located in Israel, the U.K., Germany, Russia and China.
3 Trends Shaping the Future of the Internet - Content Industry
Demand for Digital Offerings Growing: The industry is characterized by rapid technological change, frequent product and service introductions, and evolving standards. An expanding range of mobile, digital and cloud-based offerings by industry participants is a major growth driver. Moreover, the proliferation of smart devices and increasing automation of the application development process bodes well.
Industry Prospects are Driven by Ad Spending Rate: Industry participants are focusing on marketing efforts to boost traffic to websites. Advertising and subscriptions are major revenue sources for these companies. Also, the industry is dependent on consumer spending trends, making holiday spending a major deciding factor. However, macroeconomic challenges, lingering effects of the pandemic, raging inflation and higher interest rates are expected to hurt ad spending in the near term.
Increasing Regulations Mar Prospects: Industry participants involved in online search and other social networking activities are increasingly facing regulatory pressure, particularly in China and the European Union (“EU”). The China government has a number of regulations related to direct advertising, which is a prime revenue source for these companies. The implementation of the General Data Protection Regulation, which took effect on May 25, 2018, in the EU, adds to the concerns. Enactment of the Digital Markets Act (DMA) in the EU aims to prevent large online platforms, which connect users with content, goods, information and services, from abusing their market power. DMA further adds to the headwind already faced by the Internet content providers in the EU.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Internet - Content industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #28, which places it in the top 11% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Outperforms S&P and Sector
The Zacks Internet - Content industry has outperformed the broader Zacks Computer and Technology sector, as well as the S&P 500 composite over the past year.
The industry has risen 13.1% over this period compared with the 9.3% growth of the S&P 500 and the 12% increase of the broader sector.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month price-to-sales ratio (P/S), which is a commonly used multiple for valuing Internet - Content stocks, we see that the industry is currently trading at 7.4X compared with the S&P 500’s 4.06X and the sector’s 5.24X.
Over the last five years, the industry has traded as high as 14.64X and as low as 4.75X, with the median being 7.94X, as the charts below show.
Trailing 12-Month Price-to-Sales (P/S) Ratio
3 Internet Stocks to Buy
Angi: It is benefiting from a strong retention rate of service professionals and expanding paid marketing margins. Moreover, digital revenues are expected to grow driven by strong digital traffic and monetization. It expects more than 10% digital growth across 2024.
Angi expects revenue trend to improve over the course of 2024 driven by improving user experience both on the professional side and homeowner side. Although it doesn’t expect revenues to grow year over year this year, smart spending is expected to benefit adjusted EBITDA margin, which is expected to be more than 10%.
The Zacks Consensus Estimate for this Zacks Rank #1 (Strong Buy) company’s 2024 loss of 1 cent per share has been unchanged over the past 30 days. You can see the complete list of today’s Zacks #1 Rank stocks here.
Angi shares have gained 7.6% in the year-to-date period.
Price and Consensus: ANGI
Perion Network: Another Zacks Rank #1 company, PERI, rides on strong Display Advertising revenues driven by the rising adoption of its video and Connected TV solutions. Perion benefits from its diversified portfolio and expanding partner base that includes the likes of Microsoft and Amazon is helping it to expand its footprint.
The launch of WAVE, its new advertising solution for dynamic audio ads driven by generative AI, has been adopted by the likes of Spotify and many more.
The Zacks Consensus Estimate for Perion’s 2024 earnings has been steady at $3.34 per share over the past 30 days.
PERI’s shares have lost 27.3% year to date.
Price and Consensus: PERI
Airbnb: This San Francisco-based company is benefiting from continuous improvements in Nights and Experiences Booked, enabling it to witness a positive trend in its Gross Booking Value. Growing gross nights booked, owing to solid momentum across high-density urban areas and first-time bookers, is a tailwind. Further, increasing guest demand and continuous recovery in cross-border travel are major positives.
The Zacks Consensus Estimate for this Zacks Rank #2 (Buy) company’s 2024 earnings has increased by a couple of cents to $4.68 per share over the past 30 days.
Airbnb’s shares have gained 23% year to date.
Price and Consensus: ABNB
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Airbnb, Inc. (ABNB) : Free Stock Analysis Report
Perion Network Ltd (PERI) : Free Stock Analysis Report
Angi Inc. (ANGI) : Free Stock Analysis Report
