Internet, ubiquitous in this digital era, is modernizing various aspects of life. Governments and enterprises around the globe are undertaking initiatives to expand Internet availability. Per the latest update provided by InternetWorldStats in March, 2019, global Internet penetration came in at 56.1%.
Internet stocks are benefitting from secular growth in the e-commerce segment, growing clout of social-media platforms as well as expanding online delivery services.
The optimism surrounding Internet stocks can be substantiated by robust year-to-date performance. Notably, the Invesco NASDAQ Internet ETF (PNQI) and First Trust Dow Jones Internet ETF (FDN) returned 20.9% and 17.6%, respectively, on a year-to-date basis compared with the S&P 500’s rise of 13.1%.
Growth Prospects Abound
Improvement in Internet speed, rapid adoption of 4G Volte technology and accelerated deployment of 5G are paving way for ample growth opportunities in the space. Growing Internet penetration in Africa and South East Asia, higher spending power as well as rapid adoption of smartphones fuel optimism.
Furthermore, growing proliferation of artificial intelligence (“AI”), cloud, Internet of Things (“IoT”), autonomous cars and wearables amplifies growth prospects. Increasing allegiance to online gaming, music and video streaming services also deserves a special mention.
The omnipresence of Internet has provided the companies with greater access to information from users that is assisting the companies to develop AI-based automated tools.
Notably, per recent IDC estimates, the global datasphere will grow to 175 zettabytes (that is a trillion gigabytes) by 2025, from 33 zettabytes in 2018. The secular growth trend in data is expected to aid the Internet companies in making their solutions smarter with infused AI capabilities.
Facebook Benefits Most
Facebook FB estimates that more than 2.7 billion people use its “Family” of services, which includes Facebook, WhatsApp, Instagram and Messenger on a monthly basis.
Also, Facebook holds a notable market share in the U.S digital ad market. In fact, growth in mobile ad revenues, driven by robust performance of Instagram Stories and an expanding user base, favor the company’s growth prospects in 2019.
Further, the company’s plan to expand “Shopping on Instagram” is estimated to be a major growth driver. The growing appeal of the company’s Workplace platform, which has now more than two million paid users, is another key catalyst.
Additionally, the company’s plan to integrate messaging apps — WhatsApp, Instagram, and Messenger — will boost user experience by making the services more secure through end-to-end encryption.
Facebook’s initiatives to curb fake news menace and data breaches hold promise. Moreover, the company is targeting growth markets with Oculus and other VR headsets as well as blockchain initiatives, which bode well for its financial performance in the longer haul.
Long-term earnings growth rate is pegged at 18.2%. With Growth Score of B, this Zacks Rank #2 (Buy) stock deserves a place in investors’ portfolio.
Our Growth Style Score condenses all the essential metrics from the company’s financial statements to achieve a true sense of quality and sustainability of its growth. Our research shows that stocks with Growth Style Scores of A or B when combined with a Zacks Rank #1 (Strong Buy) or 2 offer the best investment opportunities in the growth investing space.
Notably, shares of Facebook have returned 26.6% on a year-to-date basis.
4 Other Internet Stocks with Strong Potential
Facebook is not the only stock in the Internet space that has attractive growth prospects.
Moreover, all the stocks listed below have delivered average positive earnings surprises in the preceding four quarters. Further, like Facebook, each of the stocks has outperformed the S&P 500 Composite on a year-to-date basis.
Year to Date Price Performance
eGain Corporation EGAN is benefiting from robust adoption of Software-as-a-Service (“SaaS”) and on-premise business-to-consumer (“B2C”) customer engagement solutions. In fact, the company’s solutions have been adopted by notable enterprise customers that include Avon, Comcast, Fiserv and Vodafone, among others.
eGain, which sports a Zacks Rank #1 and Growth Score of A, pulled off an average positive earnings surprise of 288.9% in the trailing four quarters. You can see the complete list of today’s Zacks #1 Rank stocks here.
The company’s long-term earnings growth rate is pegged at 30%.
Autohome Inc. ATHM offers an online destination for automobile consumers, primarily in the People's Republic of China. The company is expected to benefit from growing traffic in its Websites, autohome.com.cn and che168.com.
This Zacks Rank #1 stock has delivered an average positive earnings surprise of 9.5% in the trailing four quarters. It has a Growth Score of B.
Autohome’s long-term earnings growth rate is pegged at 29.4%.
Akamai Technologies Inc. AKAM is a global provider of content delivery network ("CDN") and cloud infrastructure services.
The company is benefiting from growing influence of its security solutions among media customers. Robust over-the top ("OTT") content viewing, higher adoption of mobile data/apps and growing mobile data traffic are key catalysts.
This Zacks Rank #2 stock has delivered an average positive earnings surprise of 9.5% in the trailing four quarters. It has a Growth Score of A.
The company’s long-term earnings growth rate is pegged at 14.7%.
JD.com JD is a notable e-commerce company based out of People's Republic of China. The companyis benefiting from robust e-commerce business, improving logistics services and supply chain management system.
Also, its retail-as-a-service strategy is gaining momentum in the market on the back of useful retail infrastructure solutions.Additionally, growing number of flagship stores of international brands on the company’s platform are helping it to enhance product offerings.
This Zacks Rank #2 stock has a Growth Score of A. The company has pulled off an average positive earnings surprise of 60% in the trailing four quarters.
Zacks' Top 10 Stocks for 2019
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-holds for the year?
Who wouldn't? Our annual Top 10s have beaten the market with amazing regularity. In 2018, while the market dropped -5.2%, the portfolio scored well into double-digits overall with individual stocks rising as high as +61.5%. And from 2012-2017, while the market boomed +126.3, Zacks' Top 10s reached an even more sensational +181.9%.
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