Year 2019 has been exceptional for Internet stocks as evident from the robust year-to-date performance of Invesco NASDAQ Internet ETF (PNQI), which has rallied 29.5% compared with the SPDR S&P 500 ETF’s (SPY) growth of 28.5%.
Increasing allegiance to online gaming, music and video streaming services have been boosting growth prospects. Additionally, rising Internet penetration, particularly in emerging markets including Latin America, Africa and South East Asia, presents significant growth opportunities.
Per Statista data, almost 58% or 4.48 billion people were active Internet users as of October 2019. Moreover, the number of people using Internet is expected to be 6 billion or 75% of the estimated global population by 2022, according to Cybersecurity Ventures.
The outperformance is expected to continue in 2020 due to rapid adoption of cloud computing and IoT, proliferation of e-commerce, growing clout of social-media platforms and expanding online delivery services.
Data Explosion to Aid User Base Expansion
Internet companies are delivering innovative solutions to address evolving consumer preference, which is driven by the need for convenience and easy accessibility. The ongoing data explosion is a major growth driver in this regard.
Per Cisco’s Visual Networking Index, annual global IP traffic will reach 4.8 zettabytes (ZB) per year by 2022. In 2017, the annual run rate for global IP traffic was 1.5 ZB per year. Overall, IP traffic will witness CAGR of 26% between 2017 and 2022.
According to World Economic Forum, the entire digital universe is expected to reach 44 ZB by 2020.
Internet-based companies have seamless access to this massive hoard of information and they are using it to develop new innovative solutions by infusing AI, ML and deep learning technologies.
Moreover, real-time analysis of user data supported by AI tools is helping advertisers target the right audience, which is boosting their return on investment. Additionally, focus on video streaming has been driving user engagement that is attracting advertising dollars.
Further, demand for cloud infrastructure monitoring, web-based application performance management, human capital management (HCM) and cyber security software has been on the rise.
Additionally, social media platforms are coming up with e-commerce verticals. This is enabling Internet-based companies like Facebook FB to tap new opportunities and expand their total addressable market.
Accelerated 5G Deployment: Key Catalyst
Moreover, improving Internet speed courtesy of accelerated deployment of 5G is a key catalyst.
Higher Internet speed, which means low latency, is quintessential for the smooth functioning of IoT devices. Per Rysavy Research, the rollout of 5G will play a significant role in widespread usage and adoption of machine-to-machine systems in 2020 and beyond.
Notably, Goldman Sachs now expects 120 million 5G devices to be deployed in 2020, significantly up from its previous expectation of 50 million.
Moreover, rapid deployment of 5G in 2020 is expected to boost growth in digital advertising, rapid adoption of online payment methods, AR/VR, cloud-based gaming, autonomous vehicle technology, smart cities, wearable computing and online delivery services.
Making the Right Choice
The aforementioned factors are expected to help Internet stocks gain in 2020.
However, stock picking is a difficult task and it is here that the Zacks Stock Screener can come in handy.
Here we pick five Internet stocks that have a favorable combination of a VGM Score of A or B and a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Per Zacks’ proprietary methodology, stocks with this favorable combination offer good investment opportunities.
Moreover, these stocks have a market cap of more than $1 billion.
5 Key Picks
Beijing-based Momo MOMO sports a Zacks Rank #1 and has a VGM Score of A. This mobile-based social networking platform provider has a market cap of $7.33 billion.
The Zacks Consensus Estimate for 2020 earnings has increased 3.1% to $3.37 per share in the past 60 days.
Covetrus CVET has a Zacks Rank #2 and a VGM Score of A. This New York- based company provides animal-health technology and services.
Covetrus has a market cap of $1.50 billion. The Zacks Consensus Estimate for 2020 earnings has moved north by 25.5% to 69 cents over the past 60 days.
Olathe, KS-based NIC EGOV has a Zacks Rank #2 and a VGM Score of B.
The company provides digital government services aimed at enabling governments to leverage the Internet in order to reduce costs and offer advanced services to businesses and citizens. NIC has a market cap of $1.51 billion.
The Zacks Consensus Estimate for 2020 earnings has increased 2.4% to 87 cents per share in the past 60 days.
Guangzhou-based Vipshop Holdings VIPS is an online discount retailer for brands. The company offers branded products to consumers in China through flash sales on vipshop.com website.
This $9.75 billion-worth company also has a Zacks Rank #2 and a VGM Score of B.
Notably, over the past 60 days, the consensus mark for 2020 earnings has moved upward by 21% to $1.21 per share.
San Mateo, CA-based Zuora ZUO provides cloud-based software on a subscription basis. The company has a Zacks Rank #2 and a VGM Score of B.
The Zacks Consensus Estimate for fiscal 2021 loss has narrowed from 21 cents to 19 cents per share in the past 60 days for this $1.62 billion-worth company.
Zacks Top 10 Stocks for 2020
In addition to the stocks discussed above, would you like to know about our 10 top tickers for the entirety of 2020?
These 10 are painstakingly hand-picked from over 4,000 companies covered by the Zacks Rank. They are our primary picks to buy and hold. Start Your Access to the New Zacks Top 10 Stocks >>
Click to get this free report Facebook, Inc. (FB) : Free Stock Analysis Report NIC Inc. (EGOV) : Free Stock Analysis Report Momo Inc. (MOMO) : Free Stock Analysis Report Vipshop Holdings Limited (VIPS) : Free Stock Analysis Report Zuora, Inc. (ZUO) : Free Stock Analysis Report Covetrus, Inc. (CVET) : Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research