The internet’s widespread influence is reshaping the fundamental ways we engage with our world, revolutionizing the dynamics of work, communication, commerce, and even leisure activities.
Given the backdrop, in this article, I have explored the fundamentals of three internet companies: Match Group, Inc. (MTCH), Pinterest, Inc. (PINS), and Alphabet Inc. (GOOGL). While investors could monitor quality stocks, MTCH and PINS, for potential gains, GOOGL, on the other hand, could be an ideal buy.
The internet industry has demonstrated its resilience, particularly during challenging times like the pandemic. Businesses operating in this sphere have shown remarkable agility in responding to shifting circumstances, rendering them more resilient and adept at maneuvering through volatile market conditions.
Additionally, in the transformed post-pandemic business landscape, the worldwide internet services market was valued at $487.70 billion in 2022 and is anticipated to expand significantly to reach $916.50 billion by 2030, growing at an impressive CAGR of 8.2% during the forecasted period from 2022 to 2030.
Moreover, in order to retain their competitive edge, companies operating in this space leverage the internet to bring disruptive technologies and solutions to the market. The rollout of 5G technology, for instance, further solidified the industry prospects by significantly boosting internet penetration worldwide. The market size of 5G connections is projected to be around $106.64 billion in 2023, with an anticipated expansion to $990.33 billion by 2028, reflecting a robust CAGR of 56.2%
In addition, the global 5G connections are expected to hit 1.90 billion by the end of this year. The forecast indicates an extraordinary trajectory, with global 5G connections projected to reach a staggering 6.80 billion by the end of 2027. This translates to an average annual growth of nearly one billion new connections, underscoring the immense scale and impact of 5G technology.
Furthermore, as of the start of the third quarter of 2023, a total of 5.19 billion people globally were using the internet, accounting for 64.5% of the world’s total population. On top of it, the global connected population expanded by more than 100 million users in the 12 months to July 2023.
In light of these encouraging trends and prospects, let us dive into the fundamentals of the featured Internet stocks for a better perspective, beginning with the third choice.
Stocks to Watch:
Stock #3: Match Group, Inc. (MTCH)
MTCH provides dating products worldwide. The company's portfolio of brands includes Tinder, Match, The League, Azar, Meetic, OkCupid, Hinge, Pairs, PlentyOfFish, and Hakuna, as well as various other brands.
On June 9, MTCH highlighted Tinder’s ongoing initiatives aimed at tackling online fraud. Tinder has taken the lead in introducing various safety features, such as photo verification with a selfie video, background checks through Garbo, and in-app video chat. These innovations have also been extended to other MTCH brands.
Jess Johnson, the director of safety products at MTCH, emphasized the company's commitment to improving their spam prevention tools and investing in machine learning. The company believes these efforts are crucial for ensuring the safety of MTCH's global user base.
MTCH’s trailing-12-month net income margin of 14.68% is 307.2% higher than the 3.60% industry average. Its trailing-12-month levered FCF margin of 21.94% is 161.2% higher than the 8.40% industry average. Furthermore, the stock’s trailing-12-month ROTA of 10.86% is 602.9% higher than the industry average of 1.55%.
For the fiscal second quarter, which ended on June 30, 2023, MTCH’s revenue increased 4.4% year-over-year to $829.55 million, while its operating income came in at $214.79 million versus an operating loss of $10.08 million in the prior-year quarter.
Moreover, the company’s net income and EPS amounted to $137.35 million and $0.48, compared to a net loss and loss per share of $31.86 million and $0.11 in the same period last year, respectively.
Analysts expect MTCH’s revenue and EPS for the third quarter (ending September 2023) to increase 8.9% and 31.2% year-over-year to $881.28 million and $0.76, respectively. Additionally, the company topped its EPS estimates in three of the trailing four quarters, which is promising.
Over the past three years, MTCH’s revenue and net income have grown at CAGRs of 13.6% and 67.1%, respectively. While during the same period, its EPS and levered FCF have improved at CAGRs of 55.7% and 46.6%, respectively.
The stock has gained 1.8% over the past six months to close the last trading session at $40.91
MTCH’s POWR Ratings reflect this promising outlook. It has a B grade for Quality. In the 58-stock Internet industry, it is ranked #19. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Click here to see MTCH’s ratings for Growth, Value, Momentum, Stability, and Sentiment.
Stock #2: Pinterest, Inc. (PINS)
PINS operates as a visual discovery engine in the United States and internationally. The company’s engine allows people to find ideas, such as recipes, home and style inspiration, and others.
On April 27, PINS selected Amazon as its inaugural partner for third-party ads. This collaboration with Amazon is expected to enrich PINS’ platform with a broader range of brands and relevant products while providing consumers with a seamless buying experience on Amazon.
Commenting on this collaboration with Amazon, Bill Ready, CEO of PINS, said, “This aligns with our goal of making every Pin shoppable, so that we can enable as many users as possible to bring their dreams to life.”
In terms of trailing-12-month gross profit and levered FCF margins, PINS’ 75.48% and 14.32% are 52.9% and 70.5% higher than its industry averages of 49.37% and 8.40%, respectively. In addition, its trailing-12-month asset turnover ratio of 0.83x is 72.5% higher than its industry average of 0.48x.
PINS’ revenue for the second quarter (ended June 30, 2023) increased 6.3% year-over-year to $708.03 million, while its adjusted EBITDA improved by 16.3% from the year-ago value to $107.02 million. In addition, the company’s non-GAAP net income amounted to $142.09 million and $0.21 per share, up 83.7% and 90.9% from the prior-year quarter, respectively.
The consensus EPS estimate of $0.20 for the third quarter (ending September 30, 2023) represents a 79.1% improvement year-over-year. The consensus revenue estimate of $741.94 million for the current quarter reflects an 8.4% increase from the same period last year.
Moreover, the company surpassed the EPS estimates in each of the trailing four quarters and revenue estimates in three of the trailing four quarters, which is impressive.
PINS’ revenue increased at a CAGR of 32.9% and 42.8% over the past three and five years, respectively. While its levered FCF has grown at a CAGR of 41.1% over the past three years.
Over the past year, the stock has gained 13.6% to close the last trading session at $25.91
PINS’ strong fundamentals are reflected in its POWR Ratings. It has an A grade for Quality. Within the same industry, it is ranked #18. Click here to see PINS’ ratings for Growth, Value, Momentum, Stability, and Sentiment.
Stock to Buy:
Stock #1: Alphabet Inc. (GOOGL)
Known for its pioneering internet-related services and products, GOOGL offers its various products and platforms internationally. It operates through Google Services; Google Cloud; and Other Bets segments. Its offerings include Android, Chrome, hardware, Gmail, Google Drive, Google Maps, Google Photos, Google Play, Search, and YouTube.
The stock’s trailing-12-month net income margin of 21.05% is 484.2% higher than the 3.60% industry average. Its trailing-12-month levered FCF margin of 23.57% is 180.6% higher than the 8.40% industry average. Also, GOOGL’s trailing-12-month ROCE of 23.33% is 466% higher than the industry average of 4.12%.
In the second quarter, which ended on June 30, 2023, GOOGL’s revenue increased 7.1% year-over-year to $74.60 billion. Its income from operations came in at $21.84 billion, up 12.3% from the year-ago value.
The company’s net income and EPS rose 14.8% and 19% from the prior-year quarter to $18.37 billion and $1.44, respectively. Moreover, its cash and cash equivalents amounted to $25.93 billion, increasing 32.2% compared to $21.88 billion as of December 31, 2022.
Street expects GOOGL’s revenue and EPS for the third quarter (ending September 2023) to increase 9.5% and 35.5% year-over-year to $75.67 billion and $1.43, respectively.
Additionally, GOOGL’s revenue and net income have grown at CAGRs of 20.4% and 24.6% over the past three years, respectively. Likewise, its EPS and levered FCF have improved at CAGRs of 27.6% and 38.7% over the same period, respectively.
GOOGL’s shares have surged 45.9% year-to-date to close the last trading session at $129.45.
It’s no surprise that GOOGL has an overall rating of B, which equates to Buy in our proprietary rating system. It has a B grade for Sentiment and Quality. In the same industry, it is ranked #5.
In addition to the POWR Ratings we’ve stated above, we also have GOOGL’s ratings for Growth, Value, Momentum, and Stability. Get all GOOGL ratings here.
What To Do Next?
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
GOOGL shares were trading at $129.10 per share on Wednesday afternoon, up $0.53 (+0.41%). Year-to-date, GOOGL has gained 46.32%, versus a 12.10% 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.
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