The internet industry is anticipated to grow in the face of increased digitization. However, I think it could be wise to wait for a better entry point in Netflix, Inc. (NFLX) and Solo Brands, Inc. (DTC), for reasons discussed throughout this article.
Smart money, which refers to institutional investors and hedge funds, has been closely watching the performance of NFLX and DTC. These companies have gotten a lot of attention because of their innovative business concepts and high development prospects.
NFLX’s streaming market domination and its ability to continually provide original content that resonates with people worldwide has garnered significant attention. Similarly, smart money investors have taken notice of the DTC’s direct-to-consumer model, recognizing the potential for disruption.
Government initiatives are driving the market growth for wireless internet services, while technology vendors and experts provide creative solutions for urban infrastructure development in various locations. The global internet service market is expected to grow at a CAGR of 4.4% until 2029.
Investors’ interest in internet stocks is evident from the First Trust Dow Jones Internet Index Fund’s (FDN) 22.3% returns over the past three months.
However, the internet industry faces challenges such as rapid technological advancement, increased enterprise competition, and the need to constantly adapt to changing consumer needs. Internet companies must navigate complex legal frameworks, data privacy, and security to preserve a competitive advantage.
Take a detailed look at the stocks mentioned above:
Netflix, Inc. (NFLX)
NFLX provides entertainment services. It offers TV series, documentaries, feature films, and mobile games across various genres and languages.
NFLX has institutional ownership of approximately 81.6%, with the total value of institutional holdings amounting to $158.57 million.
NFLX’s trailing-12-month EBIT margin of 17.51% is 102.6% higher than the industry average of 8.64% while, its trailing-12-month gross profit margin of 38.77x is 21.8% lower than the industry average of 49.59x.
For the first quarter of fiscal 2023, which ended March 31, 2023, NFLX’s revenues increased 3.7% year-over-year to $8.16 billion. Its non-GAAP free cash flow increased 164% from the year-ago value to $2.12 billion.
However, the company’s operating income declined 13.1% year-over-year to $1.71 billion. Also, its net income and EPS decreased by 18.3% and 18.4% from the prior year’s quarter to $1.31 billion and $2.88, respectively.
The consensus revenue estimate of $33.73 billion for the year ending December 2023 represents a 6.7% increase year-over-year. Its EPS is expected to grow 19.6% year-over-year to $11.90 for the same period. It surpassed EPS estimates in three of four trailing quarters.
NFLX’s shares have gained 93.9% over the past year to close the last trading session at $438.62. However, the stock has lost marginally over past month.
NFLX’s POWR Ratings reflect uncertainty. The stock has an overall rating of C, equating to a Neutral in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
NFLX also has a C grade for Growth, Momentum, and Stability. It is ranked #14 out of 58 stocks in the Internet industry. Click here for the additional POWR Ratings for Sentiment and Growth for NFLX.
Solo Brands, Inc. (DTC)
DTC operates a direct-to-consumer platform that offers outdoor and lifestyle branded products in the United States.
DTC has institutional ownership of approximately 100.4%, with the total value of institutional holdings amounting to $370 million.
DTC’s trailing-12-month gross profit margin of 61.82% is 75.2% higher than the industry average of 35.30% while, its trailing-12-month ROTC of 3.25% is 46.3% higher than the industry average of 6.05%.
During the fiscal first quarter that ended on March 31, 2023, DTC’s net sales increased 7.3% year-over-year to $88.21 million. Also, its gross profit came in at $54.40 million, up 11.4% year-over-year.
However, its total current assets came in at $178.91 million for the period that ended March 31, 2023, compared to $195.10 million for the period that ended December 31, 2022. Its total assets came in at $840.04 million, compared to $862.35 million for the same period.
Analysts expect DTC’s revenue to increase 4.6% year-over-year to $541.45 million for the year ending December 31, 2023. Its EPS is expected to decline 8% year-over-year to $0.98 for the same period. It surpassed EPS estimates in all four trailing quarters.
Over the past nine months, the stock has gained 38.5% to close the last trading session at $5.64. However, the stock has lost 25% over past three months.
DTC has an overall C rating, equating to a Neutral in our POWR Ratings system.
It also has a C grade for Value, Momentum and Quality. It is ranked #18 in the same industry. Beyond what is stated above, we’ve also rated DTC for Sentiment, Growth, and Stability. Get all DTC ratings here.
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NFLX shares were trading at $426.75 per share on Wednesday afternoon, down $11.87 (-2.71%). Year-to-date, NFLX has gained 44.72%, versus a 18.56% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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