In this piece, I evaluated two internet stocks, ContextLogic Inc. (WISH) and Alphabet Inc. (GOOGL), to determine which is a better investment. Based on the fundamental comparison of these stocks, I believe GOOGL is the better buy for the reasons explained throughout this article.
The internet services industry is well-poised for robust growth in the foreseeable future, thanks to rising internet penetration worldwide and rapid digitalization of various industry verticals. From communication and education to shopping and entertainment, the internet has a profound impact on our lives.
Statista reported that nearly 92% of the U.S. population accessed the internet as of 2023, an increase from approximately 75% in 2012. Last year, there were about 299 million internet users in the country. One of the primary reasons for a significant increase in the nation’s digital population is the increasing accessibility of broadband internet.
As per a report by Grand View Research, the global broadband services market size is projected to reach $875.10 billion by 2030, growing at a 9.7% CAGR. Digital transformation of businesses requires uninterrupted broadband connectivity, driving the market’s growth.
Enterprises require high-speed internet to implement digital technologies to business models in respective industries for increased operational efficiency and to keep up with competition. In addition, the internet industry continues to expand at a fast pace, driven by growing prevalence of online learning, enterprises adopting remote work strategies, and a surge in internet usage for entertainment purposes.
The increasing adoption of new, advanced wireless technologies, including 5G are further propelling the growth of the internet services industry. According to a report by Grand View Research, the global 5G services market size is expected to reach $2.21 trillion by 2030, growing at a 59.4% CAGR.
GOOGL is a clear winner in terms of price performance, with 31.6% returns over the past three months compared to WISH’s 38.2% decline. GOOGL has gained 30.1% over the past six months, while WISH plunged 59.7%. Also, GOOGL’s 15.9% gains over the past year are higher than WISH’s decline of 84%.
Here are the reasons why we think GOOGL could perform better in the near term:
Latest Developments
On March 23, WISH partnered with ShipSage, an e-commerce fulfillment service provider, to provide U.S. merchants with more options and faster fulfillment when completing orders from Wish shoppers. Through the agreement, Wish merchants that sign up for ShipSage’s fulfillment service will get access to its warehousing facilities and ecommerce fulfillment services. This deal should bode well for the company.
On June 8, GOOGL introduced the Secure AI Framework (SAIF), a conceptual framework for secure AI systems. SAIF is designed to help mitigate risks specific to AI systems such as stealing the model, data positioning of training data, extracting confidential information in the training data, and injecting malicious inputs.
Also, on May 25, GOOGL announced Search Labs, a new generative AI-powered program that enables users to access early experiments like SGE, Code Tips, and Add to Sheets. In the same month, the company unveiled the private preview of Duet AI for Google Cloud, an always-on AI collaborator to provide help to developers. Such developments might boost GOOGL’s growth and profitability.
Recent Financial Results
WISH’s revenue decreased 49.2% year-over-year to $96 million in the first quarter that ended March 31, 2023. Its gross profit was $20 million, down 68.8% from the same period in 2022. Its adjusted EBITDA loss widened 55% year-over-year to $62 million. The company’s net loss was $89 million or $3.63 per share, compared to a net loss of $60 or $2.72 per share in the first quarter of 2022.
GOOGL’s consolidated revenues for the first quarter that ended March 31, 2023, were $69.80 billion, up 3% year-over-year. The company’s operating income increased 15.4% year-over-year to $20.09 billion. In addition, its net income grew 9.2% from the year-ago value to $16.44 billion, while its EPS came in at $1.23, an increase of 5.1% year-over-year.
Past And Expected Financial Performance
Over the past three years, WISH’s revenue plunged at 33% CAGR. In addition, the company’s total assets declined at a 16.4% CAGR over the same period.
Analysts expect WISH’s revenue for the fiscal year (ending December 2023) to decrease 27.3% year-over-year to $415.12 million. Furthermore, the company’s EPS is expected to be negative for at least two fiscal years.
GOOGL’s revenue grew at a 19.5% CAGR over the past three years. Over the same time frame, the company’s net income and EPS increased at CAGRs of 19.3% and 22%, respectively. Also, its total assets grew at a CAGR of 10.6% over the past three years.
For the fiscal year ending December 2023, GOOGL’s revenue and EPS are expected to increase 5.9% and 17.1% year-over-year to $299.52 billion and $5.34, respectively. Also, analysts expect the company’s revenue and EPS for the fiscal year 2024 to grow 11.4% and 17.5% year-over-year to $333.69 billion and $6.27, respectively.
Profitability
GOOGL’s trailing-12-month revenue is 595.42 times what WISH generates. Moreover, GOOGL is more profitable, with a trailing-12-month gross profit margin of 55.30% compared to WISH’s 25.52%. Also, GOOGL’s trailing-12-month EBITDA margin and net income margin of 30.74% and 20.58% are higher than WISH’s negative 79.82% and negative 86.40%, respectively.
Furthermore, GOOGL’s trailing-12-month ROE, ROA, and ROTC of 22.76%, 16.95%, and 15.74% are favorably higher than WISH’s negative 70.84%, 48.85%, and 40.08%, respectively.
Valuation
In terms of trailing-12-month, WISH is currently trading at 0.38x, 38% lower than GOOGL, which is trading at 5.64x. Likewise, WISH’s trailing-12-month Price to Book multiple of o.46 is lower than GOOGL’s 6.04.
POWR Ratings
WISH has an overall rating of D, which equates to a Sell in our proprietary POWR Ratings system. Conversely, GOOGL has an overall rating of B, translating to a Buy. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. WISH has a grade of F for Growth. The Sentiment grade is justified by its disappointing analyst estimates. On the other hand, GOOGL has a B grade for Sentiment, consistent with its optimistic analyst expectations.
In addition, WISH has a grade of D for Quality, in sync with its lower-than-industry profitability. WISH’s trailing-12-month gross profit margin of 25.52% is 27.4% lower than the industry average of 25.15%. GOOGL, on the contrary, has a B grade for Quality, in sync with its relatively higher profitability. GOOGL has a trailing-12-month gross profit margin of 55.30%, 11.5% higher than the 49.59% industry average.
Of the 59 stocks in the Internet industry, WISH is ranked #55, while GOOGL is ranked #11.
Beyond what we’ve stated above, we have also rated both stocks for Stability, Momentum, Value, and Growth. Click here to view WISH Ratings. Get all GOOGL ratings here.
The Winner
Increasing demand for high-speed data connectivity for various applications and rapid digitalization of businesses are expected to propel the adoption of Internet services worldwide. Therefore, leading internet companies WISH and GOOGL are expected to benefit significantly from the industry’s bright growth prospects.
However, WISH’s poor financials, low profitability, and bleak growth prospects make its competitor GOOGL a better buy now.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Internet industry here.
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GOOGL shares fell $1.17 (-0.95%) in premarket trading Thursday. Year-to-date, GOOGL has gained 40.17%, versus a 14.75% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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