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3 Internet Stocks to Buy From a Prospering Industry
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The Zacks Internet – Content industry participants like Airbnb (ABNB - Free Report) , RELX (RELX - Free Report) , and Perion Network (PERI - Free Report) are benefiting from solid demand for digital offerings, as well as the increasing importance of video content and cloud-based applications. These companies are also expanding their presence across social media, display and connected TV, and search, driving top-line growth. However, the industry has been suffering from the reversal of the pandemic-led trends, along with challenging macroeconomic conditions globally. Persistent inflation and higher interest rates are having a detrimental effect on ad spending, the primary revenue source for the industry participants. The ongoing war between Russia and Ukraine has been an overhang on the prospects of the industry participants in Europe.
Industry Description
The Zacks Internet – Content industry comprises providers of video encoding platforms, personal services, Internet content and information, staffing and outsourcing services, publishing, capital markets, media-based, home service, digital insights and measurement, stock photo, video and music licensing, and online travel companies. The industry is witnessing a rapid change in consumer behavior and ongoing digitalization. Advertising is a major revenue source for industry participants. Therefore, these companies are trying to expand their digital presence to win customers. They are also expanding their 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, the U.K., Germany, Russia and China.
3 Trends Shaping the Future of the Internet - Content Industry
Demand for Digital Offerings Growing: 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, the proliferation of smart devices and increasing automation of the application development process bodes well.
Industry Prospects are Driven by Ad Spending Rate: Industry participants are focusing on marketing efforts to boost traffic to websites. Advertising and subscriptions are major revenue sources for these companies. Also, the industry is dependent on consumer spending trends, making holiday spending a major deciding factor. The reopening of economies is driving the recovery in ad spending, which bodes well for the industry participants in the long haul. However, macroeconomic challenges, lingering effects of the pandemic, raging inflation and higher interest rates are expected to hurt ad spending in the near term.
Increasing Regulations Mar Prospects: Industry participants involved in online search and other social-networking activities are increasingly facing regulatory pressure, particularly in China 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. The implementation of the General Data Protection Regulation, which took effect on May 25, 2018, in the EU, adds to the concerns. The California Consumer Privacy Act, which restricts the sale of user data, among other things, is another headwind for the industry participants.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Internet - Content industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #93, which places it in the top 37% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
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 Outperforms 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 risen 27% over this period compared with the 14.4% growth of the S&P 500 and the 22.8% increase 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 6.50X compared with the S&P 500’s 3.92X and the sector’s 4.34X.
Over the last five years, the industry has traded as high as 15.58X and as low as 4.72X, with the median being 8.22X, as the charts below show.
Trailing 12-Month Price-to-Sales (P/S) Ratio
3 Internet Stocks to Buy
Airbnb: This San Francisco-based company is benefiting from strong demand in the travel industry. Continued strength in Nights & Experiences Booked across all regions, especially in the Asia-pacific region, remains a tailwind. Moreover, increasing gross nights booked in high-density urban areas is a major positive.
The Zacks Consensus Estimate for this Zacks Rank #1 (Strong Buy) company’s 2023 earnings has decreased 1.1% to $3.47 per share over the past 30 days. You can see the complete list of today’s Zacks #1 Rank stocks here.
Airbnb’s shares have gained 74% year to date.
Price and Consensus: ABNB
Perion: 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 benefiting from strong demand for its video solutions. For second-quarter 2023, it expects revenues to grow 20% and adjusted EBITDA to jump 40%.
The Zacks Consensus Estimate for this Zacks Rank #2 (Buy) company’s 2023 earnings has increased 3.2% to $2.93 per share over the past 30 days.
Perion’s shares have gained 34% year to date.
Price and Consensus: PERI
RELX: This London-based analytics and decision tools provider is benefiting from expanding clientele. The strong adoption of Lexis+ has been a major growth driver in the law and corporate end markets. RELX is riding on an expanding product portfolio.
The Zacks Consensus Estimate for this Zacks Rank #2 company’s 2023 earnings has increased 4.4% to $1.42 per share over the past 30 days.
RELX’s shares have gained 20.8% in the year-to-date period.
Price and Consensus: RELX
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3 Internet Stocks to Buy From a Prospering Industry
The Zacks Internet – Content industry participants like Airbnb (ABNB - Free Report) , RELX (RELX - Free Report) , and Perion Network (PERI - Free Report) are benefiting from solid demand for digital offerings, as well as the increasing importance of video content and cloud-based applications. These companies are also expanding their presence across social media, display and connected TV, and search, driving top-line growth. However, the industry has been suffering from the reversal of the pandemic-led trends, along with challenging macroeconomic conditions globally. Persistent inflation and higher interest rates are having a detrimental effect on ad spending, the primary revenue source for the industry participants. The ongoing war between Russia and Ukraine has been an overhang on the prospects of the industry participants in Europe.
Industry Description
The Zacks Internet – Content industry comprises providers of video encoding platforms, personal services, Internet content and information, staffing and outsourcing services, publishing, capital markets, media-based, home service, digital insights and measurement, stock photo, video and music licensing, and online travel companies. The industry is witnessing a rapid change in consumer behavior and ongoing digitalization. Advertising is a major revenue source for industry participants. Therefore, these companies are trying to expand their digital presence to win customers. They are also expanding their 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, the U.K., Germany, Russia and China.
3 Trends Shaping the Future of the Internet - Content Industry
Demand for Digital Offerings Growing: 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, the proliferation of smart devices and increasing automation of the application development process bodes well.
Industry Prospects are Driven by Ad Spending Rate: Industry participants are focusing on marketing efforts to boost traffic to websites. Advertising and subscriptions are major revenue sources for these companies. Also, the industry is dependent on consumer spending trends, making holiday spending a major deciding factor. The reopening of economies is driving the recovery in ad spending, which bodes well for the industry participants in the long haul. However, macroeconomic challenges, lingering effects of the pandemic, raging inflation and higher interest rates are expected to hurt ad spending in the near term.
Increasing Regulations Mar Prospects: Industry participants involved in online search and other social-networking activities are increasingly facing regulatory pressure, particularly in China 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. The implementation of the General Data Protection Regulation, which took effect on May 25, 2018, in the EU, adds to the concerns. The California Consumer Privacy Act, which restricts the sale of user data, among other things, is another headwind for the industry participants.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Internet - Content industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #93, which places it in the top 37% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
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 Outperforms 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 risen 27% over this period compared with the 14.4% growth of the S&P 500 and the 22.8% increase 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 6.50X compared with the S&P 500’s 3.92X and the sector’s 4.34X.
Over the last five years, the industry has traded as high as 15.58X and as low as 4.72X, with the median being 8.22X, as the charts below show.
Trailing 12-Month Price-to-Sales (P/S) Ratio
3 Internet Stocks to Buy
Airbnb: This San Francisco-based company is benefiting from strong demand in the travel industry. Continued strength in Nights & Experiences Booked across all regions, especially in the Asia-pacific region, remains a tailwind. Moreover, increasing gross nights booked in high-density urban areas is a major positive.
The Zacks Consensus Estimate for this Zacks Rank #1 (Strong Buy) company’s 2023 earnings has decreased 1.1% to $3.47 per share over the past 30 days. You can see the complete list of today’s Zacks #1 Rank stocks here.
Airbnb’s shares have gained 74% year to date.
Price and Consensus: ABNB
Perion: 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 benefiting from strong demand for its video solutions. For second-quarter 2023, it expects revenues to grow 20% and adjusted EBITDA to jump 40%.
The Zacks Consensus Estimate for this Zacks Rank #2 (Buy) company’s 2023 earnings has increased 3.2% to $2.93 per share over the past 30 days.
Perion’s shares have gained 34% year to date.
Price and Consensus: PERI
RELX: This London-based analytics and decision tools provider is benefiting from expanding clientele. The strong adoption of Lexis+ has been a major growth driver in the law and corporate end markets. RELX is riding on an expanding product portfolio.
The Zacks Consensus Estimate for this Zacks Rank #2 company’s 2023 earnings has increased 4.4% to $1.42 per share over the past 30 days.
RELX’s shares have gained 20.8% in the year-to-date period.
Price and Consensus: RELX
