4 Internet Stocks Poised to Top Estimates This Earnings Season
Internet stocks’ third-quarter 2023 performance is expected to have significantly benefited from an uptick in the usage of social media platforms, digital advertising growth, adoption of online payment methods, expanding online delivery modes and strong e-commerce growth. However, the industry has been suffering from the reversal of the pandemic-led trends, along with 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 rapid adoption of cloud computing, improving Internet speed and penetration, rapid adoption of 4G Volte technology, augmented/virtual reality, increasing demand for over-the-top videos and an expanding user base are likely to have remained major tailwinds for Internet companies like DoorDash DASH, PayPal PYPL, Wayfair W and Yelp YELP.
Performance of Some Internet Players So Far
This is evident from the strong results delivered by Alphabet GOOGL, Meta Platforms and Snap Inc. Alphabet's third-quarter results reflected strength in the search and YouTube businesses. Strength in advertising revenues, which accounted for 77.8% of the total revenues, and robust Google Cloud growth drove Alphabet’s results.
Meta Platforms' third-quarter 2023 performance benefited from higher advertising revenues and expanding user base. Facebook’s Monthly active users (MAUs) were 3.049 billion, up 3.1% year over year.
Snap’s third-quarter 2023 results were primarily driven by steady user growth and an increase in Snapchat+ users. Notably, Snap’s daily active user base expanded to a solid 406 million, driven by improving user engagement. The Snapchat+ subscription service reached more than 5 million paying subscribers in the third quarter. More than 200 million people have used the company’s AI chatbot.
Prospects of Internet Stocks
Internet stocks have been gaining from the rapid adoption of cloud computing services, which are helping organizations to process information in a hybrid working setup, build and run crucial applications and services, and enable employees to work from anywhere across the globe.
Additionally, the emergence of remote health diagnostic and telehealth is likely to have been beneficial for Internet stocks in the third quarter. Further, the increasing adoption of high-speed Internet services and the strengthening deployment of 5G technology have been tailwinds.
Also, the rising adoption of Internet-of-Things (IoT) and increasing proliferation of online delivery services, online gaming and online payment services are expected to have aided the performance of the companies in the industry further.
Moreover, real-time analysis of user data supported by the recent burst of generative AI tools is helping advertisers target the right audience. Additionally, the focus on video streaming has been driving user engagement that is attracting advertising dollars. Such factors are expected to have hugely favored the industry participants this earnings season.
Furthermore, the strengthening demand for SaaS-based (or Software as a Service) applications is expected to have remained another growth-driving factor for Internet stocks in the quarter under review.
How to Make the Right Pick?
With the presence of several industry participants, finding the right software stocks with the potential to beat on earnings can be daunting. Our proprietary methodology, however, makes this task fairly simple.
You could narrow down your choices by looking at stocks that have the perfect combination of two key elements — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP is our proprietary methodology for determining stocks that have maximum chances of beating estimates in their next earnings announcement. It is the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate.
Our research shows that for stocks with this favorable mix of ingredients, the odds of a positive earnings surprise are as high as 70%.
Best Bets
Given below are four software stocks that have the favorable combination to beat on earnings this reporting cycle:
San Francisco, CA-based DoorDash is scheduled to report third-quarter 2023 results on Nov 1. The company currently has an Earnings ESP of +6.48% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
DoorDash is expanding its global footprint, powered by Wolt and Bbot acquisitions. The Wolt acquisition is helping DoorDash spread operations in more than 25 countries across the globe and address a larger customer base, thus driving top-line growth. Expanding partner base, including Albertson and Grocery Outlet, is expected to have helped DoorDash provide express grocery delivery to consumers. Its revenues have been growing rapidly in the past four years driven by increasing total orders and marketplace GOV.
The Zacks Consensus Estimate for loss has remained steady at 45 cents per share in the past 30 days.
DoorDash, Inc. Price and EPS Surprise
DoorDash, Inc. price-eps-surprise | DoorDash, Inc. Quote
San Jose, CA-based PayPal is scheduled to report third-quarter 2023 results on Nov 1. The company currently has an Earnings ESP of +0.66% and a Zacks Rank #3.
PayPal has been benefiting from growing total payment volume. Strengthening customer engagement on the company’s platform is a major positive. Venmo’s improving monetization efforts and rising adoption rate have been aiding total active accounts growth. Solid momentum across core peer-to-peer, merchant services and PayPal Checkout experiences is a tailwind. Accelerating transaction revenues of PayPal are likely to have driven revenues.
The Zacks Consensus Estimate for earnings has remained steady at $1.22 per share in the past 30 days.
PayPal Holdings, Inc. Price and EPS Surprise
PayPal Holdings, Inc. price-eps-surprise | PayPal Holdings, Inc. Quote
Boston, MA- based Wayfair is scheduled to report third-quarter 2023 results on Nov 1. The company currently has an Earnings ESP of +2.88% and a Zacks Rank #3.
The company has been benefiting from strong order growth. Wayfair expects third-quarter revenues to grow in mid-single digits as the active customer count is estimated to improve sequentially. The company is benefiting from a strong market share, driven by broad availability and fast delivery of products. Wayfair reported positive adjusted EBITDA and free cash flow in second-quarter 2023, which indicates that the company’s plan to lower costs and earn more customer and supplier loyalty is working.
The Zacks Consensus Estimate for loss has narrowed by 3 cents to 44 cents per share in the past 30 days.
Wayfair Inc. Price and EPS Surprise
Wayfair Inc. price-eps-surprise | Wayfair Inc. Quote
San Francisco, CA-based Yelp is scheduled to report third-quarter 2023 results on Nov 2. The company currently has an Earnings ESP of +27.12% and a Zacks Rank #3.
Yelp has been benefiting from the reopening of economies, resulting in higher ad spending, an increase in Paying Advertising Locations and an improvement in non-term customer retention rate. It is witnessing an acceleration in consumer traffic across app-unique devices. Significant improvement in cumulative reviews is encouraging, too. The company’s sustained focus on expanding its product portfolio is likely to have driven revenues further.
The Zacks Consensus Estimate for earnings has remained steady at 35 cents per share in the past 30 days.
Yelp Inc. Price and EPS Surprise
Yelp Inc. price-eps-surprise | Yelp Inc. Quote
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