The persistent wave of digitalization and the presence of smartphones continue to drive substantial growth in internet usage. Additionally, the internet industry’s outlook is strengthened by the swift adoption of Artificial Intelligence (AI) and the widespread expansion of 5G connectivity.
Against the backdrop, in this article, I have evaluated the fundamentals of three robust internet stocks, Booking Holdings Inc. (BKNG), Fiverr International Ltd. (FVRR), and Expedia Group, Inc. (EXPE), which could be better buys than Amazon.com, Inc. (AMZN).
AMZN, the global e-commerce and technology behemoth that reshaped the retail landscape, recently announced its fiscal second-quarter results, exceeding analysts’ expectations. However, the company seems to exhibit a stretched valuation and has comparatively lower profitability when benchmarked against its industry peers.
For instance, in terms of forward non-GAAP P/E, AMZN is trading at 65.84x, 354.9% higher than the industry average of 14.47x. The stock’s forward EV/Sales of 2.78x is 144.3% higher than the 1.14x industry average. Furthermore, the stock’s forward Price/Sales ratio of 2.59x is 205.6% higher than the 0.85x industry average.
On the profitability side, AMZN’s trailing-12-month net income margin of 2.43% is 43.9% lower than the 4.33% industry average. Likewise, its trailing-12-month EBIT margin of 3.29% is 54.8% lower than the industry average of 7.28%.
On the other hand, the internet industry’s outlook is brightened by widespread internet usage and the growing number of 5G connections worldwide. At the beginning of the third quarter of 2023, around 5.19 billion people across the globe were using the internet, constituting 64.5% of the total global population.
Furthermore, the global 5G connections are set to exceed 1.90 billion by the end of this year. This projection outlines an impressive trajectory, with forecasts indicating 6.80 billion global 5G connections by the conclusion of 2027. This indicates an annual average growth of nearly one billion new connections, underscoring the significant scope and impact of the 5G technology landscape.
Considering these factors, BKNG, FVRR, and EXPE could be better buys than AMZN to capitalize on the industry tailwinds. To that end, let us examine the fundamentals of these Internet stocks, beginning with number three.
Stock #3: 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 June 28, BKNG rolled out its AI Trip Planner to a select group of U.S. travelers through the company’s app. This innovative planner builds upon BKNG’s well-established machine learning models, which regularly recommend travel destinations and accommodations to millions of users.
Furthermore, it integrates aspects of OpenAI’s ChatGPT API to provide a novel conversational experience for travelers as they begin their trip-planning process.
BKNG’s trailing-12-month gross profit margin of 86% is 142.9% higher than the 35.41% industry average. Its trailing-12-month EBIT margin of 30.05% is 313% higher than the industry average of 7.28%. In addition, the stock’s trailing-12-month levered FCF margin of 28.46% is 458.6% higher than the industry average of 5.09%.
For the fiscal second quarter, which ended on June 30, 2023, BKNG’s total revenues increased 27.2% year-over-year to $5.46 billion, while its operating income rose 67.3% from the year-ago value to $1.67 billion.
The company’s net income amounted to $1.29 billion and $34.89 per share, up 50.5% and 65.6% from the prior-year quarter, respectively. Also, its adjusted EBITDA grew 63.7% from the year-ago value to $1.78 billion.
The consensus revenue estimate of $7.24 billion for the fiscal third quarter (ending September 2023) represents a 19.6% increase year-over-year. The consensus EPS estimate of $68.45 for the current quarter indicates a 29.1% improvement year-over-year. The company has an excellent surprise history, surpassing the consensus revenue and EPS estimates in each of the trailing four quarters.
Over the past year, the stock has gained 57.6% to close the last trading session at $3,173.43.
BKNG’s POWR Ratings reflect this robust outlook. The stock has an overall B rating, translating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Quality and a B for Momentum and Sentiment. In the 59-stock Internet industry, it is ranked #15. Click here to see BKNG ratings for Growth, Value, and Stability.
Stock #2: Fiverr International Ltd. (FVRR)
Headquartered in Tel Aviv, Israel, FVRR operates an online marketplace worldwide. Its platform enables sellers to sell their services and buyers to buy them. The company’s platform includes approximately 600 categories in ten verticals, including graphic and design, digital marketing, writing and translation, video and animation, etc.
On May 3, FVRR launched Fiverr Enterprise, formerly known as Stoke Talent. As part of its ongoing expansion strategies, the company is extending its solutions to cater to larger brands while enhancing its offerings for existing clients.
Fiverr Enterprise aims to empower businesses with comprehensive control and provide a seamless, all-in-one solution for sourcing, onboarding, managing, and compensating freelance talent. In addition, it simplifies complex tasks such as budget management, tax compliance, legal considerations, and workforce classification and compliance processes.
FVRR’s trailing-12-month gross profit margin of 81.71% is 169.7% higher than the 30.30% industry average. Its trailing-12-month levered FCF margin of 8.18% is 49.6% higher than the industry average of 5.47%. In addition, the stock’s trailing-12-month cash per share of $4.28 is 108.4% higher than the industry average of $2.05.
For the fiscal second quarter, which ended on June 30, 2023, FVRR’s revenue increased 5.1% year-over-year to $89.39 million, while its gross profit rose 9.3% from the year-ago value to $73.75 million.
The company’s net income amounted to $227 thousand and $0.01 per share versus a net loss of $41.86 million and $1.13 per share in the same period last year, respectively. In addition, its adjusted EBITDA improved 231.5% from the year-ago value to $15.27 million.
Street expects FVRR’s revenue and EPS for the fiscal third quarter (ending September 2023) to increase 10.6% and 119.8% year-over-year to $91.25 million and $0.46, respectively. Moreover, the company topped its EPS estimates in each of the trailing four quarters and revenue estimates in three of the trailing four quarters, which is promising.
The stock lost marginally intraday to close the last trading session at $28.28.
FVRR’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
It has an A grade for Growth and a B for Quality. Within the same industry, it is ranked #10. Click here to see the other ratings of FVRR for Value, Momentum, Stability, and Sentiment.
Stock #1: Expedia Group, Inc. (EXPE)
EXPE operates as an online travel company in the United States and internationally. The company operates through Retail; B2B; and trivago segments. Its brands include Brand Expedia, Hotels.com, Vrbo, Orbitz, CheapTickets, ebookers, Hotwire, CarRentals.com, etc.
On July 17, EXPE launched “One Key,” an innovative loyalty program that brings together its three flagship travel brands, Expedia, Hotels.com, and Vrbo. This program is a significant milestone, marking the first loyalty program for a major online vacation rental platform.
“One Key” offers a unified and flexible rewards system, allowing travelers to earn and redeem rewards across EXPE’s extensive marketplace, covering flights, hotels, vacation rentals, car rentals, cruises, and activities.
This cross-brand rewards system provides members with diverse travel possibilities and sets a new standard for travel rewards programs. The program is currently available in the United States and will expand globally starting in 2024.
On April 19, EXPE introduced a groundbreaking media platform that allows travelers to shop and book travel while watching travel content. This innovative “shoppable” platform, in partnership with Brand USA, enables viewers to explore and book various travel experiences across the United States in real time.
The platform pairs tailored content with bookable options from EXPE, empowering Brand USA to measure the impact of their content on travelers’ booking decisions. The platform is already live in Canada, with plans for expansion to other markets in the near future.
The stock’s trailing-12-month gross profit margin of 86.23% is 143.5% higher than the 35.41% industry average. Its trailing-12-month levered FCF margin of 18.67% is 266.5% higher than the industry average of 5.09%. Furthermore, EXPE’s trailing-12-month cash per share of $43.45 is a significantly higher industry average of $2.40.
For the fiscal second quarter, which ended on June 30, 2023, EXPE’s revenue increased 5.6% year-over-year to $2.36 billion, while its operating income improved 28.4% from the year-ago value to $443 million.
Moreover, the company’s attributable net income and EPS amounted to $385 million and $2.54, compared to a net loss and loss per share of $185 million and $1.17 in the same period last year, respectively.
Analysts expect EXPE’s revenue and EPS for the fiscal third quarter (ending September 2023) to increase 6.8% and 24.3% year-over-year to $3.86 billion and $5.03, respectively. Additionally, its EPS is projected to improve by 25.6% per annum over the next five years.
EXPE’s shares have surged 25.2% year-to-date to close the last trading session at $109.65.
It’s no surprise that EXPE has an overall rating of B, which equates to Buy in our proprietary rating system. It has an A grade for Value and Quality and a B for Momentum. Out of 59 stocks in the same industry, it is ranked #5.
In addition to the POWR Ratings we’ve stated above, we also have EXPE’s ratings for Growth, Stability, and Sentiment. Get all EXPE ratings here.
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BKNG shares were trading at $3,137.83 per share on Wednesday afternoon, down $35.60 (-1.12%). Year-to-date, BKNG has gained 55.70%, versus a 17.88% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka’s ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run. More…