The rising necessity for swift and effective connectivity has primed the internet industry for significant growth. Given this backdrop, fundamentally strong internet stocks Amazon.com, Inc. (AMZN), Booking Holdings Inc. (BKNG), and Meta Platforms, Inc. (META) could be solid portfolio additions now to garner significant returns.
The COVID-19 health crisis led to a substantial increase in internet use and services reliant on it, including social media, distance learning, online commerce, digital transactions, communications, and telecommuting utilities. This created lucrative opportunities for companies offering these web services.
Internet accessibility continues to proliferate worldwide, with a 2.1% annual increase of around 5.19 billion global users as of July 2023. This accounts for approximately 64.6% of the world's population.
Government measures to broaden internet accessibility fortify future strategies for the industry. The Broadband Equity, Access, and Deployment (BEAD) Program, backed by $42.45 billion from President Biden’s Bipartisan Infrastructure Law, aims to magnify high-speed internet access through initiatives encompassing planning, networking implementation, and usage plans.
With these favorable trends in mind, let's delve into the fundamentals of the three Internet stock picks, beginning with the third choice.
Stock #3: Amazon.com, Inc. (AMZN)
AMZN engages in the retail sale of consumer products and subscriptions through online and physical stores in North America and internationally. It operates through three segments: North America; International; and Amazon Web Services (AWS).
On September 28, AMZN introduced five generative AI innovations so organizations of all sizes can build new generative AI applications, enhance employee productivity, and transform their businesses. This should bode well for the company.
AMZN’s trailing-12-month cash from operations of $61.84 billion is significantly higher than the industry average of $217.79 million. Its trailing-12-month gross profit and EBITDA margins of 45.53% and 11.79% are 28.3% and 7.9% higher than the industry averages of 35.50% and 10.93%, respectively.
Over the past three and five years, its tangible book value grew at CAGRs of 35.2% and 47.3%, respectively, while its total assets grew at 22.7% and 28.9% CAGRs over the same periods.
For the fiscal second quarter that ended June 30, 2023, AMZN’s total net sales and operating income stood at $134.38 billion and $7.68 billion, up 10.8% and 131.6% year-over-year, respectively.
For the same quarter, its net income and earnings per share stood at $6.75 billion and $0.65 compared to a net loss and loss per share of $2.03 billion and $0.20 in the year-ago period. As of June 30, 2023, its total current liabilities came at $148.24 billion, compared to $155.39 billion as of December 31, 2022.
Street expects AMZN’s revenue and EPS in the fiscal third quarter ending September 2023 to increase 11.3% and 107.3% year-over-year to $141.48 billion and $0.58, respectively. The company surpassed consensus revenue and EPS estimates in three of the trailing four quarters, which is impressive.
The stock has gained 56.5% year-to-date to close the last trading session at $131.47. Over the past six months, it gained 28%.
AMZN’s POWR Ratings reflect its positive prospects. The stock has an overall B rating, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has an A grade for Sentiment and a B for Quality. Within the 59-stock Internet industry, it is ranked #15.
To see additional POWR Ratings for Growth, Value, Momentum, and Stability for AMZN, click here.
Stock #2: Booking Holdings Inc. (BKNG)
BKNG provides travel and restaurant online reservations and related services worldwide. The company operates Booking.com, which offers online accommodation reservations; Rentalcars.com, which provides online rental car reservation services; and Priceline, which offers online travel reservation services and vacation packages.
On October 9, BKNG’s OpenTable partnered with Popmenu to streamline menu management and support restaurant growth. The partnership will roll out in the UK in early 2024.
BKNG’s trailing-12-month gross profit margin of 86% is 142.3% higher than the 35.50% industry average. Its trailing-12-month EBIT margin of 30.05% is 308.3% higher than the industry average of 7.36%.
Over the past three and five years, its revenue grew at CAGRs of 19.6% and 7.1%, respectively, while its EBITDA grew at 17.9% and 2.8% CAGRs over the same periods.
For the fiscal second quarter that ended June 30, 2023, BKNG’s total revenues and operating income stood at $5.46 billion and $1.67 billion, up 27.2% and 67.3% year-over-year, respectively.
For the same quarter, its non-GAAP net income and non-GAAP net income applicable to common stockholders per common share stood at $1.39 billion and $37.62, up 79.3% and 97.2% year-over-year, respectively. Its adjusted EBITDA increased 63.7% year-over-year to $1.78 billion.
Street expects BKNG’s revenue and EPS in the fiscal third quarter ending September 2023 to increase 19.8% and 28.3% year-over-year to $7.25 billion and $68.05, respectively. The company surpassed consensus revenue and EPS estimates in each of the trailing four quarters.
The stock has gained 47.8% year-to-date to close the last trading session at $2,978.40. Over the past year, it gained 70.4%.
BKNG’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system.
BKNG has an A grade for Quality and a B for Sentiment. Within the same industry, it is ranked #9.
Beyond what we’ve stated above, we have also rated the stock for Growth, Value, Momentum, and Stability. Get all ratings of BKNG here.
Stock #1: Meta Platforms, Inc. (META)
META develops products that enable people to connect and share with friends and family through mobile devices, personal computers, virtual reality headsets, and wearables worldwide.
In August, META unveiled its advanced Large Language Model (LLM), Code Llama. The revolutionary tool is anticipated to reform developer working practices by generating and engaging in code dialogues prompted by text input.
META’s trailing-12-month cash from operations of $55.51 billion is significantly higher than the industry average of $254.23 million. Its trailing-12-month ROCE, ROTC, and ROTA of 17.36%, 14.04%, and 10.91% are 443.1%, 318.6%, and 607.8% higher than the industry averages of 3.20%, 3.35%, and 1.54%, respectively.
Over the past three and five years, its revenue grew at CAGRs of 17.1% and 20%, respectively, while its total assets grew at 14% and 18% CAGRs over the same periods.
For the fiscal second quarter that ended June 30, 2023, META’s revenue and income from operations stood at $32 billion and $9.39 billion, up 11% and 12.4% year-over-year, respectively.
For the same quarter, its net income and earnings per share attributable to class A and class B common stockholders stood at $7.79 billion and $2.98, up 16.5% and 21.1% year-over-year, respectively. Its free cash flow increased 146.2% year-over-year to $10.96 billion.
Street expects META’s revenue and EPS in the fiscal third quarter ending September 2023 to increase 20.7% and 119.7% year-over-year to $33.44 billion and $3.60, respectively. The company surpassed consensus revenue estimates in each of the trailing four quarters.
The stock has gained 169.2% year-to-date to close the last trading session at $324. Over the past year, it gained 141.7%.
META’s robust prospects are reflected in its POWR Ratings. The stock has an overall B rating, equating to Buy in our proprietary rating system.
META has an A grade for Quality and a B for Growth and Sentiment. It is ranked #8 within the Internet industry.
Click here for the additional POWR Ratings for META (Value, Momentum, and Stability).
What To Do Next?
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AMZN shares were trading at $129.55 per share on Wednesday afternoon, down $1.92 (-1.46%). Year-to-date, AMZN has gained 54.23%, versus a 14.39% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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