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Buy Zillow, Sprout Social as AI Redefines Internet Services
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Macro factors currently driving the economy, such as inflation, interest rates, labor markets, supply chain issues and so forth have a varied impact on players in the extremely diverse Internet – Services industry, although a stronger economy is generally positive. Therefore, the ongoing war; declining consumer confidence mainly related to tariffs, inflation and jobs; and inflation-driven rising producer price index (PPI) may be considered negative for the Internet Services industry.
Our picks are Zillow (Z - Free Report) and Sprout Social (SPT - Free Report) because of their growth prospects, AI adoption and cost cutting measures.
Most industry players are heavily investing in artificial intelligence and machine learning as this allows them to provide additional features and differentiate their offerings. Being a capital-intensive industry with high fixed cost of operation and the fairly constant need to build infrastructure, a high interest rate isn’t very positive for it. Therefore, any rate cuts in 2026 would make us incrementally positive about the Internet Services industry.
Valuation remains rich, but rising estimates indicate the existence of opportunities.
About the Industry
Internet - Services companies are primarily those that rely on huge software and hardware infrastructure, referred to as their properties, to deliver various services to consumers. People can avail the services by accessing these properties with their personal connected devices from almost anywhere in the world.
Companies generally operate two models: an ad-based model and an ad-free model where the service is charged. Alphabet, Baidu and Akamai are some of the larger players while Crexendo, Upwork, Dropbox, Etsy, Shopify, Uber, Lyft and Trivago are some of the emerging players. Very large players (mainly Alphabet) tend to skew averages.
Because of the diversity of services offered, it is difficult to identify industrywide factors that could affect all players. The effect of macro factors such as inflation, rate hikes, supply chain issues and so forth vary.
Factors Determining Industry Performance
Data is central to success in this industry, as it allows the players to build artificial intelligence (AI) models to improve the quality of services, create new technologies and services, and also to lower the cost of operation. AI is changing the way these companies operate: search is becoming conversational, content creation is becoming automated, AI agents are performing various tasks and personalized recommendations are now available at scale. Internet service providers are also able to differentiate their products based on the scale, flexibility and choice in AI-powered tools that they offer. The market is extremely competitive and smaller tools are getting commoditized. User interfaces across the web are being redesigned to adopt these changes. Larger companies often have the edge in AI because they have access to larger data sets that can be processed to further develop their AI.
Monetization is increasingly shifting beyond traditional advertising as companies seek more stable and diversified revenue streams. While digital ads once dominated business models, growth in advertising has matured and become more cyclical, prompting platforms to expand into subscriptions, transaction fees, marketplaces and financial services. Companies now aim to capture value directly from user activity rather than only selling audience attention to advertisers. For example, platforms integrate payments, premium memberships, commerce tools, and enterprise software offerings to generate recurring or usage-based income. This transition improves revenue predictability, strengthens customer relationships, and reduces dependence on fluctuating ad markets.
The internet services industry has undergone a major shift from prioritizing rapid user and revenue growth to emphasizing profitability and sustainable cash flow. During the low-interest-rate era, investors rewarded companies for expanding aggressively, even at the cost of large losses. However, higher interest rates and tighter capital markets have changed expectations, pushing companies to focus on operating efficiency, margin expansion and disciplined spending. Firms are now optimizing headcount, reducing customer acquisition costs and improving monetization of existing users rather than pursuing growth at any cost. This transition reflects a broader market preference for resilient business models capable of generating consistent earnings across economic cycles.
Being a capital-intensive industry, there is the need to raise funds to build out costly infrastructure. Funds are also needed to maintain this infrastructure. Given the secular growth prospects, companies have continued infrastructure investments through 2023, 2024 and 2025 despite high interest rates. Most analysts expect interest rates to come down further in 2026, which would encourage further increase in capex. Ex-Alphabet PP&E displays some seasonality although the trend continues to swing upward, meaning that companies are investing heavily in their infrastructure.
Regulation and antitrust pressure have become a defining force shaping the internet services industry as governments worldwide increase scrutiny of large digital platforms. Policymakers are focusing on issues such as market dominance, data privacy, algorithm transparency, app-store practices and digital advertising power. New regulations aim to limit anti-competitive behavior, protect consumer data and ensure fair access for smaller competitors, forcing companies to adjust business models, product design and expansion strategies. Compliance costs and legal risks are rising, while acquisitions and platform integrations face closer review. As a result, regulation is no longer a background risk but a core strategic factor influencing innovation, monetization and long-term growth decisions.
Zacks Industry Rank Indicates Near-Term Pressure
The Zacks Internet - Services industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #176, which places it among the bottom 28% of 243 Zacks-classified industries.
The group’s Zacks Industry Rank, which is basically the average rank of all the member stocks, indicates that there are several opportunities in the space.
Looking at the aggregate earnings estimate revisions over the past year, improvements in both the 2026 and 2027 estimates have been more or less consistent, remaining relatively stronger in the last two months. As a result, the aggregate estimates for 2026 and 2027 are up a respective 12.1% and 13% over the past year.
Historically, the top 50% of Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1. So the industry having moved into the bottom 50% indicates that investor sentiments remain muted.
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 Valuation: Rich
Over the past year, the industry has returned more than both the broader Technology sector and the S&P 500. It had been trading below both indexes up until July but started pulling ahead thereafter. It has widened the gap with both since September last year.
The industry’s net gain of 65.6% over the past year is more than the broader sector’s 28.6% and the S&P 500’s 17.6%.
One-Year Price Performance
Image Source: Zacks Investment Research
Industry Appears Somewhat Overvalued
On the basis of forward 12-month price-to-earnings (P/E) ratio, we see that the industry is currently trading at a 23.90X multiple, which is more or less its median value of 23.89X over the past year. This is a 15.3% premium to the S&P 500’s 20.72X and a 5.3% premium to the sector’s 29.07X.
Over the past year, the industry has traded in the range of 17.22X to 29.74X, a much broader range than the S&P’s 20.63X to 23.8X. The sector has traded in the 22.7X to 29.9X range.
Forward 12 Month Price-to-Earnings (P/E) Ratio
Image Source: Zacks Investment Research
2 Solid Bets
The Internet Services industry is not in a good place at the moment mainly because of an uncertain macro and persistently high interest rates. Since the industry is highly diverse, it is only to be expected that some players would be doing exceedingly well while others not so much. We currently have a Zacks #2 (Buy) rating on both Zillow and Sprout Social discussed below.
Zillow Group Inc. (Z - Free Report) : Zillow operates a digital real-estate marketplace that connects homebuyers, sellers, renters, real-estate agents, landlords, and mortgage providers across the US. Its platforms allow users to search property listings, view price estimates (Zestimates), schedule tours and contact agents. Z
illow generates revenue primarily through advertising and lead-generation services sold to real-estate professionals, rental marketplace fees and mortgage origination services. The company is evolving into an end-to-end “housing super-app,” integrating search, financing, touring, transaction support and rentals into a unified online ecosystem designed to streamline residential real-estate transactions from discovery through closing.
The shift away from a listings website to a platform marketplace reduces Zillow’s dependence on ad revenue and opens up the possibility of multiple fees per transaction, driving up revenue per home sold. The company is well positioned to capitalize on its enormous traffic, strong brand recognition and nationwide network to generate solid growth. Additionally, it is investing in AI-based home recommendations, automated valuations, smart agent matching and
conversational search, all of which should facilitate the transition. Its revenue model promises more stable margins and its asset-light model will allow it to capitalize on housing market upcycles with limited balance sheet impact.
The one major downside to the whole story is its dependence on the interest rate, which is expected to remain high relative to historical standards. This drives up mortgage rates and therefore, home prices, and dries up buying intent. The prospect of lower home sales naturally drives down earnings expectations and hits the share price.
The company beat earnings estimates by 3 cents. Both 2026 and 2027 estimaes are unchanged in the last 30 days although both are down compared with 60 days ago. Analysts are currently looking for 2026 revenue and earnings growth of 15.1% and 28.1%, respectively. For 2027, they’re expecting 13.4% revenue growth and 28.9% earnings growth.
The shares of this Zacks Rank #2 (Buy) stock are down 38.1% over the past year.
Price and Consensus: Z
Image Source: Zacks Investment Research
Sprout Social, Inc. (SPT - Free Report) : Sprout Social, Inc. is a cloud-based software company that provides businesses with tools to manage, analyze and optimize their social-media presence across platforms such as Instagram, LinkedIn, TikTok, Facebook and X. Its subscription platform integrates content publishing, message management, customer service, social listening, influencer marketing and performance analytics into a unified dashboard.
Companies use Sprout to schedule posts, respond to customers through a centralized inbox, monitor brand sentiment and generate data-driven marketing insights. The company increasingly embeds AI to automate workflows, interpret social data, and help organizations turn online conversations into measurable business intelligence and customer engagement strategies.
As social media evolves from a mere marketing channel to a platform supporting a range of functions, including customer care, brand monitoring, crisis management, sales discovery and reputation analytics, the demand for a SaaS platform that can handle all these aspects for brands is also on the rise. Sprout has been gradually increasing its large enterprise focus because the broader volumes and scale are make this an obvious choice to drive revenue and profitability.
Enterprises don’t generally hop from one vendor to another, which lowers churn, adds predictability to revenue streams and supports pricing power. There’s also the possibility of gradually expanding services within accounts. In general, software delivery costs grow at a slower pace than subscriptions. So once investments stabilize, there is significant operating leverage, which leads to solid margin expansion.
There is an ongoing debate about whether AI is really helpful for the company since it lowers barriers to entry and increases competition, including from large social media players’ inhouse developments, while also increasing cost of innovation as features are quickly commoditized. However, Sprout does have a competitive moat in the vast amounts of unstructured datasets across platforms that it already possesses, along with its normalization and analytics operations, which require the kind of infrastructure that cannot be built in a hurry. Historical datasets also improve AI accuracy.
Sprout processes massive social datasets and embeds AI into sentiment analysis, automated engagement and campaign optimization. Customer reviews and rankings continue placing Sprout as a leader in social listening and analytics tools.
Sprout topped estimates in the last quarter, with earnings beating by 25%. The 2026 estimate has not changed in the last 30 days while the 2027 estimate increased 5 cents (4.4%). At these levels, they represent a 7.8% increase in revenue and a 14.6% increase in earnings for 2026 and a 7% revenue increase and 27.1% earnings increase in the following year.
The shares of this Zacks Rank #2 (Buy) stock have lost 77.2% of their value over the past year.
Price and Consensus: SPT
Image Source: Zacks Investment Research
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Buy Zillow, Sprout Social as AI Redefines Internet Services
Macro factors currently driving the economy, such as inflation, interest rates, labor markets, supply chain issues and so forth have a varied impact on players in the extremely diverse Internet – Services industry, although a stronger economy is generally positive. Therefore, the ongoing war; declining consumer confidence mainly related to tariffs, inflation and jobs; and inflation-driven rising producer price index (PPI) may be considered negative for the Internet Services industry.
Our picks are Zillow (Z - Free Report) and Sprout Social (SPT - Free Report) because of their growth prospects, AI adoption and cost cutting measures.
Most industry players are heavily investing in artificial intelligence and machine learning as this allows them to provide additional features and differentiate their offerings. Being a capital-intensive industry with high fixed cost of operation and the fairly constant need to build infrastructure, a high interest rate isn’t very positive for it. Therefore, any rate cuts in 2026 would make us incrementally positive about the Internet Services industry.
Valuation remains rich, but rising estimates indicate the existence of opportunities.
About the Industry
Internet - Services companies are primarily those that rely on huge software and hardware infrastructure, referred to as their properties, to deliver various services to consumers. People can avail the services by accessing these properties with their personal connected devices from almost anywhere in the world.
Companies generally operate two models: an ad-based model and an ad-free model where the service is charged. Alphabet, Baidu and Akamai are some of the larger players while Crexendo, Upwork, Dropbox, Etsy, Shopify, Uber, Lyft and Trivago are some of the emerging players. Very large players (mainly Alphabet) tend to skew averages.
Because of the diversity of services offered, it is difficult to identify industrywide factors that could affect all players. The effect of macro factors such as inflation, rate hikes, supply chain issues and so forth vary.
Factors Determining Industry Performance
Zacks Industry Rank Indicates Near-Term Pressure
The Zacks Internet - Services industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #176, which places it among the bottom 28% of 243 Zacks-classified industries.
The group’s Zacks Industry Rank, which is basically the average rank of all the member stocks, indicates that there are several opportunities in the space.
Looking at the aggregate earnings estimate revisions over the past year, improvements in both the 2026 and 2027 estimates have been more or less consistent, remaining relatively stronger in the last two months. As a result, the aggregate estimates for 2026 and 2027 are up a respective 12.1% and 13% over the past year.
Historically, the top 50% of Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1. So the industry having moved into the bottom 50% indicates that investor sentiments remain muted.
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 Valuation: Rich
Over the past year, the industry has returned more than both the broader Technology sector and the S&P 500. It had been trading below both indexes up until July but started pulling ahead thereafter. It has widened the gap with both since September last year.
The industry’s net gain of 65.6% over the past year is more than the broader sector’s 28.6% and the S&P 500’s 17.6%.
One-Year Price Performance
Image Source: Zacks Investment Research
Industry Appears Somewhat Overvalued
On the basis of forward 12-month price-to-earnings (P/E) ratio, we see that the industry is currently trading at a 23.90X multiple, which is more or less its median value of 23.89X over the past year. This is a 15.3% premium to the S&P 500’s 20.72X and a 5.3% premium to the sector’s 29.07X.
Over the past year, the industry has traded in the range of 17.22X to 29.74X, a much broader range than the S&P’s 20.63X to 23.8X. The sector has traded in the 22.7X to 29.9X range.
Forward 12 Month Price-to-Earnings (P/E) Ratio
Image Source: Zacks Investment Research
2 Solid Bets
The Internet Services industry is not in a good place at the moment mainly because of an uncertain macro and persistently high interest rates. Since the industry is highly diverse, it is only to be expected that some players would be doing exceedingly well while others not so much. We currently have a Zacks #2 (Buy) rating on both Zillow and Sprout Social discussed below.
Zillow Group Inc. (Z - Free Report) : Zillow operates a digital real-estate marketplace that connects homebuyers, sellers, renters, real-estate agents, landlords, and mortgage providers across the US. Its platforms allow users to search property listings, view price estimates (Zestimates), schedule tours and contact agents. Z
illow generates revenue primarily through advertising and lead-generation services sold to real-estate professionals, rental marketplace fees and mortgage origination services. The company is evolving into an end-to-end “housing super-app,” integrating search, financing, touring, transaction support and rentals into a unified online ecosystem designed to streamline residential real-estate transactions from discovery through closing.
The shift away from a listings website to a platform marketplace reduces Zillow’s dependence on ad revenue and opens up the possibility of multiple fees per transaction, driving up revenue per home sold. The company is well positioned to capitalize on its enormous traffic, strong brand recognition and nationwide network to generate solid growth. Additionally, it is investing in AI-based home recommendations, automated valuations, smart agent matching and
conversational search, all of which should facilitate the transition. Its revenue model promises more stable margins and its asset-light model will allow it to capitalize on housing market upcycles with limited balance sheet impact.
The one major downside to the whole story is its dependence on the interest rate, which is expected to remain high relative to historical standards. This drives up mortgage rates and therefore, home prices, and dries up buying intent. The prospect of lower home sales naturally drives down earnings expectations and hits the share price.
The company beat earnings estimates by 3 cents. Both 2026 and 2027 estimaes are unchanged in the last 30 days although both are down compared with 60 days ago. Analysts are currently looking for 2026 revenue and earnings growth of 15.1% and 28.1%, respectively. For 2027, they’re expecting 13.4% revenue growth and 28.9% earnings growth.
The shares of this Zacks Rank #2 (Buy) stock are down 38.1% over the past year.
Price and Consensus: Z
Image Source: Zacks Investment Research
Sprout Social, Inc. (SPT - Free Report) : Sprout Social, Inc. is a cloud-based software company that provides businesses with tools to manage, analyze and optimize their social-media presence across platforms such as Instagram, LinkedIn, TikTok, Facebook and X. Its subscription platform integrates content publishing, message management, customer service, social listening, influencer marketing and performance analytics into a unified dashboard.
Companies use Sprout to schedule posts, respond to customers through a centralized inbox, monitor brand sentiment and generate data-driven marketing insights. The company increasingly embeds AI to automate workflows, interpret social data, and help organizations turn online conversations into measurable business intelligence and customer engagement strategies.
As social media evolves from a mere marketing channel to a platform supporting a range of functions, including customer care, brand monitoring, crisis management, sales discovery and reputation analytics, the demand for a SaaS platform that can handle all these aspects for brands is also on the rise. Sprout has been gradually increasing its large enterprise focus because the broader volumes and scale are make this an obvious choice to drive revenue and profitability.
Enterprises don’t generally hop from one vendor to another, which lowers churn, adds predictability to revenue streams and supports pricing power. There’s also the possibility of gradually expanding services within accounts. In general, software delivery costs grow at a slower pace than subscriptions. So once investments stabilize, there is significant operating leverage, which leads to solid margin expansion.
There is an ongoing debate about whether AI is really helpful for the company since it lowers barriers to entry and increases competition, including from large social media players’ inhouse developments, while also increasing cost of innovation as features are quickly commoditized. However, Sprout does have a competitive moat in the vast amounts of unstructured datasets across platforms that it already possesses, along with its normalization and analytics operations, which require the kind of infrastructure that cannot be built in a hurry. Historical datasets also improve AI accuracy.
Sprout processes massive social datasets and embeds AI into sentiment analysis, automated engagement and campaign optimization. Customer reviews and rankings continue placing Sprout as a leader in social listening and analytics tools.
Sprout topped estimates in the last quarter, with earnings beating by 25%. The 2026 estimate has not changed in the last 30 days while the 2027 estimate increased 5 cents (4.4%). At these levels, they represent a 7.8% increase in revenue and a 14.6% increase in earnings for 2026 and a 7% revenue increase and 27.1% earnings increase in the following year.
The shares of this Zacks Rank #2 (Buy) stock have lost 77.2% of their value over the past year.
Price and Consensus: SPT
Image Source: Zacks Investment Research