U.S. Markets open in 1 hr 41 mins

Internet Content Industry Outlook Bright Despite Regulatory Woes

Zacks Equity Research

The Zacks Internet – Content Industry comprises providers of video encoding platform, personal services, Internet content & information, staffing & outsourcing services, publishing, capital markets and media-based companies.

Apart from the United States, a number of companies in this industry are located in the Netherlands, Israel, United Kingdom, Germany, Russia and China.

Here are the three major industry themes:

  • The Zacks Internet - Content industry is characterized by rapid technological change, frequent product and service introductions, and evolving industry standards. An expanding range of mobile and cloud-based offerings by industry participants is a major growth driver. Moreover, proliferation of smart devices and increasing automation of the application development process bode well for the industry.
  • Industry participants are focusing on marketing efforts to boost traffic to their websites that eventually attract more consumers as well as businesses. Advertising and subscriptions are major source of revenues for these companies. Notably, the industry is susceptible to consumer spending trends. Hence, strong holiday spending is a major plus for these companies.
  •  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. Moreover, post Facebook’s Cambridge Analytica scandal that affected 87 million users, the industry participants have been facing rigorous scrutiny in the United States as well as the EU. The implementation of General Data Protection Regulation (GDPR), which took effect from May 25, 2018 in the EU, adds to the concerns.

Zacks Industry Rank Indicates Solid Prospects

The Zacks Internet - Content industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #106, which places it at the top 42% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates solid near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

The industry’s position in the top 50% of the Zacks-ranked industries is a result of positive earnings outlook for the constituent companies in aggregate.

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 Lags on Shareholder Returns

The Zacks Internet - Content Industry has lagged the broader Zacks Computer and Technology sector as well as the Zacks S&P 500 composite over the past year.

The industry has declined 44.5% over this period compared with the S&P 500’s fall of 6.5% and broader sector’s decline of 8.2%.

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 2.91X compared with the S&P 500’s 3.12X and sector’s trailing 12-month P/S of 3.26X.

Over the last five years, the industry has traded as high as 6.49X, as low as 2.57X and at the median of 4.54X, as the chart below shows.

Trailing 12-Month Price-to-Sales (P/S) Ratio


Bottom Line

Here, we present three stocks that either have a Zacks Rank #1 (Strong Buy) or Rank 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

These stocks are well positioned to grow in the near term.

Remark Holdings (MARK): The stock of this Las Vegas, NV-based operator of social media data intelligence platform, KanKan, has a Zacks Rank #1. Moreover, the 2019 Zacks Consensus Estimate for the stock has improved from a loss of $1.03 to 99 cents per share over the past 30 days.

Price and Consensus : MARK


TheStreet, Inc. (TST): The stock of this New York-based financial news and information provider has surged 69.1% over the past year. However, the 2019 Zacks Consensus Estimate for this Zacks Rank #2 stock has remained steady at a loss of 8 cents over the past month.

Price and Consensus: TST


Yelp Inc. (YELP): San Francisco, CA-based Yelp is a website engaged in providing information through online community offering social networking. The consensus EPS estimate for this Zacks Rank #2 stock has moved 1.9% higher for 2019 over the past 30 days.

Price and Consensus: YELP


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%.

See Latest Stocks Today >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Yelp Inc. (YELP) : Free Stock Analysis Report
Remark Media, Inc. (MARK) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research