By breaking down physical barriers, consumer internet businesses are reshaping how people shop, connect, learn, and play. But it’s not all sunshine and rainbows as consumer purchasing power can make or break demand. This unpredictability is weighing on the industry as its 7.1% return over the past six months has fallen short of the S&P 500’s 13.6% gain.
Only some companies are subject to these dynamics, however, and a handful of high-quality businesses can deliver earnings growth in any environment. On that note, here are two resilient internet stocks at the top of our wish list and one that may face trouble.
One Consumer Internet Stock to Sell:
Teladoc (TDOC)
Market Cap: $1.36 billion
Founded to help people in rural areas get online medical consultations, Teladoc Health (NYSE: TDOC) is a telemedicine platform that facilitates remote doctor’s visits.
Why Does TDOC Fall Short?
- Annual revenue growth of 2.9% over the last three years was below our standards for the consumer internet sector
- Preference for prioritizing user growth over monetization has led to 7.9% annual drops in its average revenue per user
- Projected sales are flat for the next 12 months, implying demand will slow from its three-year trend
At $7.66 per share, Teladoc trades at 4.7x forward EV/EBITDA. If you’re considering TDOC for your portfolio, see our FREE research report to learn more.
Two Consumer Internet Stocks to Watch:
Roku (ROKU)
Market Cap: $15.57 billion
With a name meaning six in Japanese because it was the founder's sixth company that he started, Roku (NASDAQ: ROKU) makes hardware players that offer access to various online streaming TV services.
Why Is ROKU Interesting?
- Has the opportunity to boost monetization through new features and premium offerings as its total hours streamed have grown by 18.7% annually over the last two years
- Performance over the past three years shows its incremental sales were extremely profitable, as its annual earnings per share growth of 51.2% outpaced its revenue gains
- Free cash flow margin expanded by 14 percentage points over the last few years, providing additional flexibility for investments and share buybacks/dividends
Roku is trading at $105.30 per share, or 31.2x forward EV/EBITDA. Is now the right time to buy? Find out in our full research report, it’s free for active Edge members.
Instacart (CART)
Market Cap: $11.42 billion
Powering more than one billion grocery orders since its founding, Instacart (NASDAQ: CART) is an online grocery shopping and delivery platform that partners with retailers to help customers shop from local stores through its app or website.
Why Is CART a Good Business?
- Annual revenue growth of 17% over the last three years beat the sector average and underscores the popularity of its platform
- Disciplined cost controls and effective management resulted in a strong two-year EBITDA margin of 27%, and its operating leverage amplified its profits over the last few years
- Free cash flow margin grew by 16.8 percentage points over the last few years, giving the company more chips to play with
Instacart’s stock price of $43.30 implies a valuation ratio of 11.1x forward EV/EBITDA. Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free for active Edge members.
Stocks We Like Even More
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