Internet adoption has grown rapidly over the recent past. The global internet penetration rate stands at about 63% in 2022, with about 5 billion people using the internet. The number of devices connected to the internet is expected to hit 500 billion by 2030.
The internet industry seemingly received a boost from the Internet of Things (IoT) market, which exhibits great potential. The market is forecasted to grow at a 26.4% CAGR between 2022 to 2029 to reach $2.47 trillion.
However, the tech sector is facing headwinds from higher interest rates, inflation, and a slowing economy this year. Moreover, cybercrime is expected to cost companies worldwide an estimated $10.50 trillion annually by 2025.
While it might be best to avoid internet stock Snap Inc. (SNAP) given the macro headwinds, fundamentally solid stocks Expedia Group, Inc. (EXPE), trivago N.V. (TRVG), Yelp Inc. (YELP), and Data Storage Corporation (DTST) could be worth buying.
Stock to Avoid:
Snap Inc. (SNAP)
SNAP operates as a camera company internationally. The company offers Snapchat, a camera application with various functionalities that enable people to communicate visually through short videos and images.
Recently, SNAP reached a $35 million settlement with the state of Illinois in a class-action lawsuit to pay Illinois residents who used the app’s “lenses” or “filters” features between a specific time. The lawsuit alleged that SNAP’s filters and lenses violated the state’s Biometric Information Privacy Act (BIPA).
In the second quarter ended June 30, SNAP’s total cost and expenses increased 28.7% from its prior-year quarter to $1.51 billion. The adjusted EBITDA declined 93.9% from the prior-year quarter to $7.19 million. The non-GAAP net loss came in at $29.60 million, indicating an increase of 120.5% from its year-ago value. The company’s net loss per share increased 120% year-over-year to $0.02.
Analysts expect SNAP’s EPS to decline 71.5% year-over-year to $0.06 for the fourth fiscal quarter ending December. Its consensus revenue estimate is expected to be $1.31 billion.
The stock has declined 86% over the past year and 77.5% year-to-date to close its last trading session at $10.60.
The stock has an overall D rating, equating to Sell in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
SNAP is graded a D in Growth, Momentum, Stability, Sentiment, and Quality. It is ranked #56 out of 82 stocks in the Internet industry.
In addition to the POWR Rating grades we’ve stated above, one can see SNAP’s ratings for Growth and Quality here.
Stocks to Buy:
Expedia Group, Inc. (EXPE)
EXPE is an online travel company operating through Retail; B2B; and trivago segments. The company’s brand portfolio includes Brand Expedia, Hotels.com, Vrbo, Hotwire, and CarRentals.com.
On June 30, EXPE announced a collaboration with the loyalty program Bilt Rewards to launch the new Bilt Travel Portal. Christian Gerron, senior vice president, Media & Brand Partnerships, EXPE, said, “Our innovative solutions provide Bilt Rewards with technology they need to build a wonderful experience and offer an unparalleled amount of travel options to their members.”
On May 4, EXPE debuted its three-tiered strategy to redefine its place in the travel industry by introducing its new technology platform Expedia Group Open World, a reimagined marketplace that should serve partners and travelers. The new platform is expected to deliver an e-commerce suite enabling and encouraging people to travel.
EXPE’s revenues increased 50.7% year-over-year to $3.18 billion in the second quarter ended June 30. Its total adjusted EBITDA grew 222.4% from the year-ago value to $648 million. Operating income stood at $345 million, up 361.4% from the prior-year period.
Analysts expect EXPE’s revenue for the fiscal third quarter (ending September 2022) to come in at $3.57 billion, representing a 20.7% rise year-over-year. Street expects the company’s EPS for the ongoing quarter to come in at $4.12, representing a growth of 16.7% year-over-year. Additionally, the company has topped consensus EPS estimates in three of the trailing four quarters, which is impressive.
EXPE has gained 6.6% over the past month to close its last trading session at $105.97.
EXPE’s POWR Ratings reflect this promising outlook. The company has an overall rating of B, which translates to Buy in our proprietary rating system. The stock has an A grade for Quality and a B for Growth and Value. It is ranked #3 in the Internet industry.
Beyond what we’ve stated above, we have also given EXPE grades for Momentum, Stability, and Sentiment. Get all EXPE ratings here.
trivago N.V. (TRVG)
TRVG operates a hotel and accommodation search platform worldwide. It offers an online meta-search for hotels and accommodation through online travel agencies, hotel chains, and independent hotels. It is headquartered in Düsseldorf, Germany.
For the fiscal second quarter ended June 30, 2022, TRVG’s total revenue increased 51.6% year-over-year to €144.80 million ($144.05 million). Adjusted EBITDA grew 186.4% from the prior-year period to €30.30 million ($30.14 million).
The consensus EPS estimate of $0.05 for the fiscal third quarter (ending September 2022) reflects a rise of 97.5% year-over-year. Likewise, the $184.16 million consensus revenue estimate for the same quarter indicates an improvement of 14.5% from the prior-year period. The company has also topped the consensus EPS estimates in each of the trailing four quarters.
Over the past month, the stock has gained 3.4% to close its last trading session at $1.53.
TRVG has an A grade for Quality and a B for Growth and Value. It is ranked #1 in the same industry. Click here to see the additional POWR Ratings for TRVG (Momentum, Stability, and Sentiment).
Yelp Inc. (YELP)
YELP operates a platform that connects consumers with local businesses internationally. The company’s platform covers various local business categories and provides businesses with free and paid advertising products.
YELP’s net revenue increased 16.2% year-over-year to $298.88 million in the second quarter ended June 30. Its adjusted EBITDA grew 40% from the year-ago value to $67.32 million, while its net income attributable to common stockholders improved 90.1% year-over-year to $8.01 million. The company’s net earnings per common share increased 120% from its year-ago value to $0.11.
The consensus EPS estimate of $0.63 for the fiscal quarter ending September 2022 indicates a 1.3% improvement year-over-year. The consensus revenue is expected to grow 14.2% year-over-year to $307.42 million for the same period.
The stock has gained 20.1% over the past three months and 12.4% over the past month to close its last trading session at $34.21.
YELP has an overall rating of A, which translates to Strong Buy in our proprietary rating system. The stock is rated an A in Quality and a B in Value. Within the same industry, it is ranked #2.
To see additional POWR Ratings for Growth, Momentum, Stability, and Sentiment for YELP, click here.
Data Storage Corporation (DTST)
DTST provides multi-cloud information technology solutions primarily in the United States. The company offers data protection and disaster recovery solutions, support, maintenance, and internet solutions. It also provides cybersecurity solutions.
In May, DTST announced that the Professional Fighters League had partnered with Flagship Solutions Group, a DTST company, for the 2022 season to use cloud-based products and AI to reshape the way fans engage with the sport of MMA.
DTST’s sales came in at $4.83 million for the second quarter ending June 30, representing a 36.8% year-over-year growth. Its adjusted EBITDA amounted to $32.88 thousand, while its gross profit rose 22.8% from the same period last year to $1.85 million.
Analysts expect DTST’s revenue for the quarter ending September to be $5.50 million, indicating a 42.5% year-over-year growth.
DTST has gained 0.9% intraday to close its last trading session at $2.35.
It is no surprise that DTST has an overall B rating, which translates to Buy in our POWR Ratings system. DTST has an A grade for Sentiment and a B for Value and Quality. It is ranked #6 in the Internet industry.
Beyond what we’ve stated above, we have also given DTST grades for Growth, Momentum, and Stability. Get all DTST ratings here.
SNAP shares were trading at $10.81 per share on Wednesday afternoon, up $0.21 (+1.98%). Year-to-date, SNAP has declined -77.01%, versus a -12.20% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor’s degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities. More…
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