Since last year, the tech industry has faced headwinds of high inflation and the Fed’s aggressive interest rate hikes leading to a sell-off in high-growth tech stocks. However, the growth prospects of the tech industry look bright owing to growing tech dependency, the need for high-speed connectivity, and rising investments in digital transformation.
Therefore, investors could look to buy fundamentally strong internet stocks Yelp Inc. (YELP), LegalZoom.com, Inc. (LZ), and Data Storage Corporation (DTST), given their solid growth prospects.
Before diving deeper into the fundamentals of these stocks, let’s discuss what’s happening in the internet industry.
The continual development of telecommunications networks and infrastructure has directly impacted global internet penetration. Thanks to the development of mobile technology and industrialization, internet users have been increasing worldwide.
The demand and usage of the internet have risen exponentially in the post-pandemic world. The pandemic boosted the work-from-home culture, online learning, online gaming, online shopping, etc., leading to increased demand for the internet. The number of internet users in North America is forecasted to increase by 53 million users between 2023 and 2028.
The growing demand for high-speed internet connectivity drives 5G and satellite internet roll-out. The importance of high-speed and seamless connectivity in today’s world is indispensable. It is vital for companies who have migrated their operations to the cloud, fintech companies, and banks offering digital payments, streaming platforms, IoT devices, connected cars, and others.
The internet industry is being reshaped by the proliferation of IoT devices. The global Internet of Things (IoT) market is projected to grow at a CAGR of 26.1% to $3.35 trillion by 2030.
Given these factors, it could be wise to buy the featured stocks. Let’s take a closer look at their fundamentals.
Yelp Inc. (YELP)
YELP operates a platform that connects consumers with local businesses worldwide. The company's platform covers various local business categories, including restaurants, shopping, beauty and fitness, health, and other categories.
YELP’s revenue grew at a CAGR of 6.1% over the past three years. Its EBIT grew at a CAGR of 79.5% over the past three years. Moreover, its EPS grew at a CAGR of 16.8% in the same time frame.
YELP’s net revenue for the first quarter ended March 31, 2023, increased 12.9% year-over-year to $312.44 million. Its net cash provided by operating activities increased 23.9% over the prior-year quarter to $74.24 million. Its adjusted EBITDA increased 12.3% year-over-year to $54.03 million.
YELP’s EPS and revenue for the quarter ending June 30, 2023, are expected to increase 73.2% and 8.7% year-over-year to $0.63 and $324.87 million, respectively. The stock has gained 11.8% year-to-date to close the last trading session at $30.57.
YELP’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #3 out of 56 stocks in the Internet industry. In addition, it has an A grade for Value and Quality. We have also given YELP grades for Growth, Momentum, Stability, and Sentiment. Get all the YELP ratings here.
LegalZoom.com, Inc. (LZ)
LZ operates an online platform for legal and compliance solutions. The company's platform offers products and services, including business formations, creating estate planning documents, protecting intellectual property, completing certain forms and agreements, providing access to independent attorney advice, and connecting customers with experts for tax preparation and bookkeeping services.
LZ’s revenue grew at a CAGR of 14.9% over the past three years. Its total assets grew at a CAGR of 26.6% in the same time frame.
LZ’s revenue for the fiscal first quarter ended March 31, 2023, increased 6.8% year-over-year to $165.94 million. Its non-GAAP net income came in at $14 million, compared to a non-GAAP net loss of $5.43 million in the year-ago quarter.
The company’s adjusted EBITDA increased 870.6% year-over-year to $21.87 million. Additionally, its non-GAAP net EPS came in at $0.07, compared to a non-GAAP net loss per share of $0.03 over the prior-year quarter.
Analysts expect LZ’s EPS and revenue for the quarter ending June 30, 2023, to increase 99.2% and 1.8% year-over-year to $0.10 and $166.85 million, respectively. It has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. The stock has gained 37.6% year-to-date to close the last trading session at $10.65.
LZ’s POWR Ratings reflect solid prospects. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. It is ranked #11 in the same industry. The stock has an A grade for Growth and a B for Quality.
Click here to see the additional POWR Ratings of LZ for Value, Momentum, Stability, and Sentiment.
Data Storage Corporation (DTST)
DTST provides multi-cloud information technology solutions primarily in the United States. The company offers data protection and disaster recovery solutions, high availability, data vaulting, retention, Infrastructure as a Service, standby server, support and maintenance, and internet solutions.
DTST’s revenue grew at a CAGR of 41.2% over the past three years. Moreover, its total assets grew at a CAGR of 48.6% over the past three years.
DTST’s sales for the first quarter ended March 31, 2023, came in at $6.88 million. The company’s gross profit came in at $2.09 million. Its total assets came in at $24.35 million, compared to $24.09 million for the fiscal year ended December 31, 2022. Also, its net income attributable to common stockholders and EPS came in at $50.66 thousand and $0.01, respectively.
Street expects DTST’s revenue for the quarter ending June 30, 2023, to increase 16% year-over-year to $5.60 million. Its EPS for fiscal 2024 is expected to increase 80% year-over-year to $0.18. The stock has gained 32.4% year-to-date to close the last trading session at $1.96.
DTST’s positive outlook is reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
It is ranked #6 in the Internet industry. It has an A grade for Sentiment and a B for Value and Quality. To see the other ratings of DTST for Growth, Momentum, and Stability, click here.
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YELP shares were unchanged in premarket trading Tuesday. Year-to-date, YELP has gained 11.81%, versus a 8.10% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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