Alphabet's (GOOGL), the tech giant, has seen its shares drop 5% in the last month. The company's last reported quarter had a disappointing financial performance. It might be worthwhile to consider investing in internet stocks with a strong fundamental base, such as Yelp (YELP), Trivago (TRVG), and Travelzoo(TZOO), all of which are rated A (Strong Purchase) by our proprietary rating system. Continue reading.
Internet's future looks bright. The Internet industry has seen a rapid growth, fueled by both technological advances and changing consumer needs.
Alphabet Inc., the tech giant behind Google (GOOGL), has made significant advances in AI technology. However, it reported disappointing financials for the first quarter of the fiscal year. GOOGL is expected to be affected by inflationary pressures this year, as well as higher interest rates and persistent recessionary fears.
This article discusses why trivago N.V., (TRVG), Travelzoo, (TZOO), all of which have higher POWR ratings, may be better investments for GOOGL.
Let's first look at GOOGL to see how it has performed recently.
GOOGL lost 5% in the last month, but gained marginally during the past year. It closed its last trading session with $118.34.
GOOGL's operating income decreased 13.3% to $17.42 Billion during the first quarter of fiscal 2023.
The company's net profit fell 8.4% on an annual basis to $15.05 Billion, while its earnings per share (EPS) dropped 5.1% to $1.17. GOOGL also missed revenue and EPS estimates in three out of the last four quarters.
The stock is also valued at a premium. The stock currently trades at 4.91x EV/Sales which is 169.6% more than the average industry of 1.82x. The stock's non-GAAP forward P/E multiple is 22.81, which is 67% more than the industry average of 13.66.
In the next few years, the integration of digital technologies into every business area will fuel a surge in internet usage. The internet services industry benefits from the increasing demand for virtual communications, remote work tools and streaming services.
Gartner predicts that global IT expenditures will reach $4.60 trillion in this year. This is a 5.5% increase from last year.
This promising outlook will be further enhanced by the increased implementation of 5G technologies, which promise faster speeds, better connectivity and enable innovative services like the Internet of Things. This industry's prospects are also strengthened by the growth of fixed wireless access.
Global 5G services will grow at a rate of 59.4% CAGR until 2030.
Take a look at these stocks to determine how well they're positioned to take advantage of the prospects for the industry.
YELP is a platform which connects local businesses with consumers in the United States as well as internationally. Platforms are available for different regional categories of businesses. The company also offers businesses free and paid promotional products.
YELP has a trailing-12 month gross profit margin of 91.19 %, which is 83.9% more than the industry average of 49.59 %. The trailing-12 month levered FCF of 19.28% was 164.8% greater than the industry average of 7.28%.
YELP currently trades at 1.66x EV/Sales in the future, which is 9% less than the average industry of 1.82x. The company's non-GAAP forward P/E multiple is 12.93, which is 5.4% less than the industry average of 13.66.
On April 25th, 2023 YELP announced a number of new features to make it easier for consumers and businesses to find each other.
YELP’s net revenue grew 12.9% over the previous year to $312.44 millions for the first fiscal quarter ending March 31, 2023. The adjusted EBITDA of YELP increased 12.3% over the past year to $54.03 millions. Net cash from operations increased by 23.9% to $74.24 millions.
YELP is expected to increase its EPS by 69% in the second quarter of fiscal 2023 (ending June). The company's revenue will likely increase by 8.7% over the past year to $324.97 millions in the same quarter. It is impressive that the company has exceeded revenue expectations in all four quarters.
YELP stock closed its last trading session on $35.09, up 28.4% over the year and 33% in the past six-months.
YELP POWR Ratings show a positive outlook. The stock is rated A in our proprietary system, which means it's a strong buy. The POWR ratings assess stocks based on 118 factors, each of which has its own weighting.
It has also been given an A for Value and a B grade for Quality. YELP ranks #2 in the 58-stock Internet Industry.
trivago N.V. (TRVG)
TRVG, headquartered in Dusseldorf (Germany), operates a global platform for hotel and accommodation searches. The company provides an online meta-search of hotels and accommodation through online travel agents, hotel chains and independent hotels.
TRVG's gross profit margin for the trailing 12 months is 97.64%, which is 96.9% more than the industry average of 49.59%. The EBIT margin for the trailing 12 months is 11.55%, which is 35.6% more than the industry average of 8.52%.
TRVG's EV/Sales forward multiple of 0.23 compares to the average industry of 1.82. Its non-GAAP forward P/E ratio of 6.21x, is 54.5% less than the industry average of 13.66x.
TRVG's revenue total increased by 9.2% in the first quarter of fiscal 2023 to EUR111.04 ($121.09) million. The operating income was EUR14.76 ($16.10 millions) as opposed to an operating loss in the prior-year quarter of EUR4.84 ($5.28million).
The company also reported an EPS (earnings per share) of EUR0.03, compared with a loss per share of EUR0.03 during the same quarter last year.
Street estimates TRVG's second-quarter revenue will increase 7.6% over the prior-year quarter, to $159.10 millions. This quarter ends June 2023. The company's EPS is also expected to be $0.04 for the same period.
The stock closed its last trading session at $0.19, a slight gain over the previous five days.
The POWR ratings reflect TRVG's solid fundamentals. Our proprietary rating system gives the stock an A-rating, which is a strong buy.
TRVG is rated A for Quality, B for Growth, Momentum and Value. It is the top-ranked company in its industry.
Click here to access additional POWR ratings for Stability and Sentiment in TRVG.
TZOO, a global media company, offers entertainment, travel and lifestyle experiences. Travelzoo North America, Travelzoo Europe and Jack's Flight Club are the company's segments.
TZOO’s net income margin for the 12-month period ending in March 2010 is 10.78%, which is 3073% higher than industry average of 2.65%. Its gross profit margin for the trailing 12 months is 86.63%, which is 74.7% more than the average industry of 49.59%.
TZOO’s forward EV/Sales multiplier of 1.59x, is 12.6% less than the industry's average of 1.82x. The non-GAAP forward P/E multiple is 10.38, which is 24% less than the industry average of 13.66.
On May 11, TZOO revealed that Travelzoo META, its exclusive service for members only, had opened its door to one million Founding Member. This marked a new era of travel.
This revolutionary platform allows members to enjoy and explore virtual travel adventures. TZOO META aims at redefining the future of travel through the Metaverse. It offers a new way for people to immerse in travel experiences.
TZOO reported a 17.1% increase in revenues from the previous year to $21.60 millions for its fiscal first quarter ending March 31, 2023. The company's nonGAAP operating profit increased by 105.4% to $5.54million from the previous quarter.
The net income attributable TZOO also increased by 55.7% from the previous year to $3.67million, and its EPS increased by 21.1% to $0.23.
Analysts predict that TZOO will increase its earnings per share and revenue by 154.2%, and by 19.8% respectively from the previous quarter. This is expected to be $0.21 and $21.19 millions in the second fiscal quarter ending June 2023.
The stock closed the last trading day at $8.68, a 100.2% increase over the previous six months. The stock has also surged 95.1% for the year.
The stock's overall rating is A, which in our rating system translates into a Strong Purchase.
It is rated A for Sentiment and quality and B for Growth and Momentum. It is ranked third in the same industry.
Click here to view the additional ratings of TZOO.
Death trap stocks lurk in your portfolio
YELP's shares were unchanged during premarket trading on Tuesday. YELP shares have gained 28.35% year-to-date compared to the S&P 500 benchmark index's 13.67% increase during the same time period.
About the Author: Kritika Saarmah
Kritika's passion for writing and interest in risky financial instruments made her an analyst and journalist. She has a bachelor's in commerce, and is pursuing a CFA program. She hopes to identify investment opportunities that are not being explored by investors using her fundamental approach.