The exponential increase in internet users, growing demand for internet services, the availability of high-speed internet, and the increasing digitalization across different sectors have boosted the prospects of the internet industry significantly.
Against this backdrop, investors could consider buying fundamentally strong internet stocks such as Comcast Corporation (CMCSA), VeriSign, Inc. (VRSN), Expedia Group, Inc. (EXPE), and Yelp Inc. (YELP) in May. Before diving deeper into the fundamentals of these stocks, let’s first understand what’s shaping the internet industry’s prospects.
Internet accessibility continues to proliferate worldwide, with 5.35 billion internet users, or 66.2% of the global population. Over the past year, internet users have grown by 1.8%, with around 97 million new users using online platforms for the first time. This growing rate of internet adoption bodes well for the industry.
The surge in internet penetration over the years has been a boon for diverse sectors like healthcare, travel, e-commerce, entertainment, and financial services. Leveraging their digital platforms, businesses have been able to tap into a broader customer base. The upswing in digital services owes its existence to the ascent of the Internet.
The dramatic increase in incorporating digital technologies such as AI, IoT, cloud computing, 5G, data analytics, social media, etc., has also contributed to the industry's growth. The global internet service market is projected to reach $733.79 billion by 2031, exhibiting a 4.4% CAGR. Furthermore, internet service providers are using fiber optic cables to provide fiber internet.
Given fiber internet’s proven reliability and faster speeds, it is likely to see enhanced Internet access and greater usage of digital services, augmenting the growth of the sectors that rely on the Internet, such as e-commerce, travel, entertainment, digital services, etc. The U.S. internet service providers industry is anticipated to hit $148.70 billion in revenue this year.
Considering these conducive trends, let’s examine the fundamentals of the four featured Internet stocks.
Comcast Corporation (CMCSA)
CMCSA operates as a media and technology company worldwide. It operates through the Residential Connectivity & Platforms, Business Services Connectivity, Media, Studios, and Theme Parks segments.
On May 9, 2024, CMCSA announced the nationwide launch of NOW Internet and NOW Mobile, offering flexible, low-cost pay-as-you-go options with reliable connectivity, no contracts, and access to Xfinity's extensive network, including hotspots.
These new services provide affordable internet speeds and mobile plans, empowering customers with control over their subscriptions through online platforms or Xfinity stores.
CMCSA’s trailing-12-month CAPEX / Sales of 10.14% is 182.5% higher than the industry average of 3.59%. Likewise, its trailing-12-month EBIT margin and levered FCF margin of 19.25% and 18.86% are 122.8% and 142.1% higher than the industry averages of 8.64% and 7.79%, respectively.
CMCSA’s revenue for the fiscal first quarter that ended March 31, 2024, increased 1.2% year-over-year to $30.06 billion. Its free cash flow rose 19.4% from the year-ago quarter to $4.54 billion. Moreover, its adjusted net income stood at $4.17 billion, up 7.6% over the prior-year quarter. Also, its adjusted EPS grew 13.9% year-over-year to $1.04.
Analysts expect CMCSA’s revenue and EPS for the quarter ending September 30, 2024, to increase 6.2% each year-over-year to $31.97 billion and $1.15, respectively. The company surpassed the Street revenue and EPS estimates in each of the trailing four quarters, which is impressive. Over the past month, the stock has gained marginally to close the last trading session at $39.70.
CMCSA’s POWR Ratings reflect this promising outlook. It has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
CMCSA has a B grade for Stability and Quality. It is ranked first out of 8 stocks in the Entertainment - TV & Internet Providers industry. Beyond what we stated above, we have also rated CMCSA for Growth, Value, Momentum, and Sentiment. Get all the CMCSA ratings here.
VeriSign, Inc. (VRSN)
VRSN provides domain name registry services and internet infrastructure that enables internet navigation for various recognized domain names worldwide.
VRSN’s trailing-12-month net income margin of 55.06% is considerably higher than the industry average of 2.48%. Similarly, its trailing-12-month Return on Total Capital and Return on Total Assets of 358.82% and 48.21% are significantly higher than the industry averages of 2.47% and 1.41%, respectively.
For the fiscal first quarter that ended March 31, 2024, VRSN’s revenues and operating income stood at $384.30 million and $258.90 million, up 5.5% and 7.3% year-over-year, respectively. For the same quarter, its net income and earnings per share increased 8.6% and 12.9% from the year-ago quarter to $194.10 million and $1.92, respectively.
Street expects VRSN’s revenue and EPS for the quarter ending June 30, 2024, to increase 4% and 8.3% year-over-year to $386.83 million and $1.94, respectively. The company surpassed consensus EPS estimates in each of the trailing four quarters. VRSN’s stock has declined 8.7% over the past month, closing the last trading session at $169.73.
VRSN’s POWR Ratings reflect its positive prospects. It has an overall B rating, equating to Buy in our proprietary rating system.
VRSN has an A grade for Quality and a B for Stability. Within the Internet - Services industry, it is ranked #7 out of 26 stocks. Click here for the additional POWR Ratings of VRSN (Growth, Value, Momentum, and Sentiment).
Expedia Group, Inc. (EXPE)
EXPE operates as an online travel company in the U.S. and internationally. The company operates through B2C, B2B, and trivago segments.
On May 14, 2024, EXPE unveiled Romie, an AI-powered travel assistant, alongside 40+ new features in their 2024 Spring Release, enhancing travel planning and partner experiences.
Additionally, they introduced Travel Shops, a new e-commerce product allowing content creators to monetize travel recommendations and provide a shoppable storefront experience.
EXPE’s trailing-12-month Return on Common Equity of 59.29% is 430.9% higher than the industry average of 11.17%. Its trailing-12-month gross profit margin and EBITDA margin of 88.39% and 13.20% are 140.2% and 18.7% higher than the industry averages of 36.79% and 11.12%, respectively.
EXPE’s revenue for the fiscal first quarter that ended March 31, 2024, increased 8.4% year-over-year to $2.89 billion. Its adjusted EBITDA rose 37.8% from the year-ago quarter to $255 million.
In addition, its adjusted net income attributable to EXPE and earnings per share stood at $29 million and $0.21, respectively, compared to an adjusted net loss attributable to EXPE and loss per share of $30 million and $0.21 in the prior-year quarter.
For the quarter ending June 30, 2024, EXPE’s revenue and EPS are expected to increase 5.2% and 8.4% year-over-year to $3.53 billion and $3.13, respectively. It surpassed consensus EPS estimates in each of the trailing four quarters and consensus revenue estimates in three of the trailing four quarters. The stock has gained 26.9% over the past year to close the last trading session at $113.48.
EXPE’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, equating to Buy in our proprietary rating system.
It has an A grade for Value and Quality. It is ranked #12 out of 52 stocks in the B-rated Internet industry. To see EXPE’s Growth, Momentum, Stability, and Sentiment ratings, click here.
Yelp Inc. (YELP)
YELP operates a platform that connects consumers with local businesses in the U.S. and internationally. The company's platform covers various local business categories, including restaurants, shopping, beauty and fitness, health, and other categories, as well as home, local, auto, professional, pets, events, real estate, and financial services.
On April 30, 2024, YELP announced its Spring Product Release, which included over 15 updates and features transforming how consumers and businesses connect. The company also unveiled Yelp Assistant, a new conversational AI feature that will make it easier for consumers to find and hire service professionals.
In addition, it introduced the Yelp Fusion AI API, which brings YELP’s trusted content to third-party platforms via natural language search. It also revamped the Yelp Guest Manager experience, helping restaurants improve efficiency and enhance guest experiences.
YELP’s trailing-12-month asset turnover ratio of 1.35x is 177.2% higher than the industry average of 0.49x. Similarly, its trailing-12-month EBIT margin and levered FCF margin of 9.42% and 21.64% are 9% and 177.8% higher than the industry averages of 8.64% and 7.79%, respectively.
For the fiscal first quarter that ended March 31, 2024, YELP’s net revenue grew 6.5% year-over-year to $332.75 million. The company’s free cash flow stood at $65.87 million. YELP’s net income attributable to common stockholders stood at $14.15 million or $0.20 per share, compared to a net loss attributable to common stockholders of $1.18 million or $0.02 per share in the year-ago quarter.
Street expects YELP’s revenue and EPS for the quarter ending June 30, 2024, to increase 4.8% and 10.6% year-over-year to $353.39 million and $0.74, respectively. The company surpassed consensus EPS estimates in each of the trailing four quarters and consensus revenue estimates in three of the trailing four quarters. The stock has gained 28.1% over the past year to close the last trading session at $37.72.
YELP’s robust prospects are reflected in its POWR Ratings. It has an overall A rating, equating to a Strong Buy in our proprietary rating system.
YELP has an A grade for Value and Quality and a B for Growth. It is ranked first within the Internet industry. Click here for the additional POWR Ratings for YELP for Momentum, Stability, and Sentiment.
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CMCSA shares were trading at $39.70 per share on Wednesday morning, down $0.00 (0.00%). Year-to-date, CMCSA has declined -8.19%, versus a 10.89% rise in the benchmark S&P 500 index during the same period.
About the Author: Neha Panjwani
From her school days, Neha harbored a profound fascination for finance, a passion that steered her toward a career as an investment analyst following the completion of her bachelor's degree in commerce. Currently enrolled in the CFA program, Neha is dedicated to further enriching her comprehension of investment fundamentals. Neha's primary objective is to aid retail investors in discerning optimal investment opportunities by diligently evaluating crucial aspects of financial instruments, with a primary focus on stocks and ETFs. Her commitment lies in empowering individuals to make informed and strategic investment decisions in the dynamic world of finance.
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