Whether it be online shopping or social media, secular forces are propelling consumer internet businesses forward. 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 8% return over the past six months has fallen short of the S&P 500’s 15.9% 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 is one resilient internet stock at the top of our wish list and two we’re passing on.
Two Consumer Internet Stocks to Sell:
eBay (EBAY)
Market Cap: $47.35 billion
Originally known as the first online auction site, eBay (NASDAQ: EBAY) is one of the world’s largest online marketplaces.
Why Does EBAY Worry Us?
- Modest 1.3% annual growth in active buyers over the last two years indicates potential challenges in customer acquisition and retention
- Anticipated sales growth of 8% for the next year implies demand will be shaky
- Efficiency has decreased over the last few years as its EBITDA margin fell by 1.9 percentage points
eBay is trading at $106.46 per share, or 13.6x forward EV/EBITDA. If you’re considering EBAY for your portfolio, see our FREE research report to learn more.
Revolve (RVLV)
Market Cap: $1.48 billion
Launched in 2003 by software engineers Michael Mente and Mike Karanikolas, Revolve (NYSE: RVLV) is a fashion retailer leveraging social media and a community of fashion influencers to drive its merchandising strategy.
Why Are We Wary of RVLV?
- Annual revenue growth of 6.6% over the last three years was below our standards for the consumer internet sector
- May need to improve its platform and marketing strategy as its 6.5% average growth in active customers underwhelmed
- Excessive marketing spend signals little organic demand and traction for its platform
At $21.20 per share, Revolve trades at 11.8x forward EV/EBITDA. To fully understand why you should be careful with RVLV, check out our full research report (it’s free).
One Consumer Internet Stock to Buy:
Meta (META)
Market Cap: $1.85 trillion
Famously founded by Mark Zuckerberg in his Harvard dorm, Meta Platforms (NASDAQ: META) operates a collection of the largest social networks in the world - Facebook, Instagram, WhatsApp, and Messenger, along with its metaverse focused Reality Labs.
What Makes META Stand Out?
- Customer spending is rising as the company has focused on monetization over the last two years, leading to 24.4% annual growth in its average revenue per user
- Disciplined cost controls and effective management resulted in a strong two-year EBITDA margin of 60.5%, and it turbocharged its profits by achieving some fixed cost leverage
- Performance over the past three years was turbocharged by share buybacks, which enabled its earnings per share to grow faster than its revenue
Meta’s stock price of $727.65 implies a valuation ratio of 11.8x forward EV/EBITDA. Is now a good time to buy? See for yourself in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
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