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3 Internet Stocks to Watch in a Challenging Industry
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The Zacks Internet – Content industry is suffering from the coronavirus-led chaos that has affected industries like travel. However, the pandemic has opened up new channels of growth for Internet content providers. The industry participants have witnessed solid demand for e-commerce services from home-confined consumers amid lockdowns and restrictions on traveling. Moreover, resurgence in digital advertising is a key catalyst.
Industry participants like Airbnb (ABNB - Free Report) , Yelp (YELP - Free Report) and Perion Networks (PERI - Free Report) are benefiting from solid demand for digital offerings as well as increasing importance of video content and cloud-based applications.
Industry Description
The Zacks Internet – Content industry comprises providers of video encoding platform, personal services, Internet content & information, staffing & outsourcing services, publishing, capital markets, media-based, home service, digital insights and measurement, stock photo, video and music licensing as well as online travel companies. The industry is witnessing a rapid change in consumer behavior and ongoing digitalization. Advertising is a major source of revenues for industry participants so these companies are trying to expand their digital presence in order to win new customers. They are also expanding presence across social media, display and connected TV and search. Apart from the United States, a number of companies in this industry are located in Israel, United Kingdom, Germany, Russia and China.
3 Trends Shaping the Future of the Internet - Content Industry
Growing Demand for Digital Offerings: The industry is characterized by rapid technological change, frequent product and service introductions, and evolving standards. An expanding range of mobile, digital and cloud-based offerings by industry participants is a major growth driver. Moreover, proliferation of smart devices and increasing automation of the application development process bode well.
Coronavirus Hurts Ad Demand: Industry participants are focusing on marketing efforts to boost traffic to websites. Advertising and subscriptions are major sources of revenues for these companies. Also, the industry is dependent on consumer spending trends, making holiday spending a major deciding factor. However, sluggish advertising demand and reduced budget for online advertising due to the coronavirus-led economic downturn is a potent headwind.
Increasing Regulations Mar Prospects: Industry participants, involved in online search and other social-networking activities, are increasingly facing regulatory pressure, particularly in China, Russia and the European Union (EU). The China government has a number of regulations related to direct advertising, which is a prime revenue source for these companies. Moreover, the implementation of General Data Protection Regulation, which took effect on May 25, 2018, in the EU, adds to the concerns. Moreover, California Consumer Privacy Act (CCPA), which restricts sales of user data among other things, is a headwind for the industry participants.
Zacks Industry Rank Indicates Dim Prospects
The Zacks Internet - Content industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #211, which places it at the bottom 17% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates gloomy near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Beats on Shareholder Returns
The Zacks Internet - Content industry has outperformed the broader Zacks Computer and Technology sector as well as the Zacks S&P 500 composite over the past year.
The industry has returned 31.4% over this period versus the 23.4% increase of the S&P 500 and the 22.5% rally of the broader sector.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month price-to-sales ratio (P/S), which is a commonly used multiple for valuing Internet - Content stocks, we see that the industry is currently trading at 8.97X compared with the S&P 500’s 4.90X and the sector’s trailing 12-month P/S of 5.43X.
Over the last five years, the industry has traded as high as 15.58X, as low as 4.34X and at the median of 8.42X, as the chart below shows.
Trailing 12-Month Price-to-Sales (P/S) Ratio
3 Internet Stocks to Watch
Yelp: This San Francisco, CA-based company is a website engaged in providing information through online community offering social networking. It covers restaurants, shopping, nightlife, financial services, health and a variety of services.
Yelp is witnessing acceleration in consumer traffic across app-unique devices. Significant improvement in cumulative reviews is encouraging too. Yelp’s sustained focus on expanding its product portfolio with the launch of Verified License, Business Highlights, Yelp Portfolios and Yelp Fusion are key growth drivers.
The Zacks Consensus Estimate for Yelp’s 2021 earnings has jumped 387.5% to 39 cents per share over the past 30 days. The stock is up 11.2% year to date.
Price and Consensus: YELP
Airbnb: This San Francisco, CA-based online travel company is riding on rebounding U.S. and European demand for traveling due to the efficacy of vaccines in reducing infections, hospitalizations and death rates.
Airbnb, which currently has a Zacks Rank #2 (Buy), is expected to improve bookings and traffic trends.
The Zacks Consensus Estimate for Airbnb’s 2021 loss has narrowed from $1.30 per share to 63 cents per share over the past 30 days. Airbnb’s shares are up 24.9% year to date.
Price and Consensus: ABNB
Perion Network: This Israel-based global technology company delivers online advertising solutions and search monetization to brands and publishers in North America, Europe and internationally. Perion is committed to providing digital advertising solutions to capture consumer attention and drive engagement as well as deliver ads across a portfolio of websites and mobile applications.
Perion is riding on strong advertising revenue growth. Recovery in advertiser spending and a spike in e-commerce-related ad spending are key catalysts. Perion is expected to benefit from the robust performance of its Search business, driven by strong advertiser demand.
The Zacks Consensus Estimate for this Zacks Rank #2 company’s 2021 earnings has been steady at 87 cents per share over the past 30 days. Perion’s shares have gained 154.8% year to date.
Price and Consensus: PERI
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3 Internet Stocks to Watch in a Challenging Industry
The Zacks Internet – Content industry is suffering from the coronavirus-led chaos that has affected industries like travel. However, the pandemic has opened up new channels of growth for Internet content providers. The industry participants have witnessed solid demand for e-commerce services from home-confined consumers amid lockdowns and restrictions on traveling. Moreover, resurgence in digital advertising is a key catalyst.
Industry participants like Airbnb (ABNB - Free Report) , Yelp (YELP - Free Report) and Perion Networks (PERI - Free Report) are benefiting from solid demand for digital offerings as well as increasing importance of video content and cloud-based applications.
Industry Description
The Zacks Internet – Content industry comprises providers of video encoding platform, personal services, Internet content & information, staffing & outsourcing services, publishing, capital markets, media-based, home service, digital insights and measurement, stock photo, video and music licensing as well as online travel companies. The industry is witnessing a rapid change in consumer behavior and ongoing digitalization. Advertising is a major source of revenues for industry participants so these companies are trying to expand their digital presence in order to win new customers. They are also expanding presence across social media, display and connected TV and search. Apart from the United States, a number of companies in this industry are located in Israel, United Kingdom, Germany, Russia and China.
3 Trends Shaping the Future of the Internet - Content Industry
Growing Demand for Digital Offerings: The industry is characterized by rapid technological change, frequent product and service introductions, and evolving standards. An expanding range of mobile, digital and cloud-based offerings by industry participants is a major growth driver. Moreover, proliferation of smart devices and increasing automation of the application development process bode well.
Coronavirus Hurts Ad Demand: Industry participants are focusing on marketing efforts to boost traffic to websites. Advertising and subscriptions are major sources of revenues for these companies. Also, the industry is dependent on consumer spending trends, making holiday spending a major deciding factor. However, sluggish advertising demand and reduced budget for online advertising due to the coronavirus-led economic downturn is a potent headwind.
Increasing Regulations Mar Prospects: Industry participants, involved in online search and other social-networking activities, are increasingly facing regulatory pressure, particularly in China, Russia and the European Union (EU). The China government has a number of regulations related to direct advertising, which is a prime revenue source for these companies. Moreover, the implementation of General Data Protection Regulation, which took effect on May 25, 2018, in the EU, adds to the concerns. Moreover, California Consumer Privacy Act (CCPA), which restricts sales of user data among other things, is a headwind for the industry participants.
Zacks Industry Rank Indicates Dim Prospects
The Zacks Internet - Content industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #211, which places it at the bottom 17% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates gloomy near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Beats on Shareholder Returns
The Zacks Internet - Content industry has outperformed the broader Zacks Computer and Technology sector as well as the Zacks S&P 500 composite over the past year.
The industry has returned 31.4% over this period versus the 23.4% increase of the S&P 500 and the 22.5% rally of the broader sector.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month price-to-sales ratio (P/S), which is a commonly used multiple for valuing Internet - Content stocks, we see that the industry is currently trading at 8.97X compared with the S&P 500’s 4.90X and the sector’s trailing 12-month P/S of 5.43X.
Over the last five years, the industry has traded as high as 15.58X, as low as 4.34X and at the median of 8.42X, as the chart below shows.
Trailing 12-Month Price-to-Sales (P/S) Ratio
3 Internet Stocks to Watch
Yelp: This San Francisco, CA-based company is a website engaged in providing information through online community offering social networking. It covers restaurants, shopping, nightlife, financial services, health and a variety of services.
Yelp, which currently sports a Zacks Rank #1 (Strong Buy) is benefiting from rising food take-out and delivery orders. You can see the complete list of today’s Zacks #1 Rank stocks here.
Yelp is witnessing acceleration in consumer traffic across app-unique devices. Significant improvement in cumulative reviews is encouraging too. Yelp’s sustained focus on expanding its product portfolio with the launch of Verified License, Business Highlights, Yelp Portfolios and Yelp Fusion are key growth drivers.
The Zacks Consensus Estimate for Yelp’s 2021 earnings has jumped 387.5% to 39 cents per share over the past 30 days. The stock is up 11.2% year to date.
Price and Consensus: YELP
Airbnb: This San Francisco, CA-based online travel company is riding on rebounding U.S. and European demand for traveling due to the efficacy of vaccines in reducing infections, hospitalizations and death rates.
Airbnb, which currently has a Zacks Rank #2 (Buy), is expected to improve bookings and traffic trends.
The Zacks Consensus Estimate for Airbnb’s 2021 loss has narrowed from $1.30 per share to 63 cents per share over the past 30 days. Airbnb’s shares are up 24.9% year to date.
Price and Consensus: ABNB
Perion Network: This Israel-based global technology company delivers online advertising solutions and search monetization to brands and publishers in North America, Europe and internationally. Perion is committed to providing digital advertising solutions to capture consumer attention and drive engagement as well as deliver ads across a portfolio of websites and mobile applications.
Perion is riding on strong advertising revenue growth. Recovery in advertiser spending and a spike in e-commerce-related ad spending are key catalysts. Perion is expected to benefit from the robust performance of its Search business, driven by strong advertiser demand.
The Zacks Consensus Estimate for this Zacks Rank #2 company’s 2021 earnings has been steady at 87 cents per share over the past 30 days. Perion’s shares have gained 154.8% year to date.
Price and Consensus: PERI
