The internet sector is poised for significant expansion, propelled by rising demand for consumer broadband across various industries and widespread integration of the Internet into our daily activities. Given the favorable industry trends, quality internet stocks TrueCar, Inc. (TRUE), Travelzoo (TZOO), and Similarweb Ltd. (SMWB) could be wise additions to your portfolio for year-end gains.
The internet services market in the United States has been experiencing significant growth in recent years, driven by various factors such as technological advancements, increasing demand for cloud computing, and the need for digital transformation across industries.
Additionally, the rising global penetration of internet services has paved the way for increased demand for internet bandwidth. Expanding cloud-based applications and soaring demand for audio-video streaming and video-on-demand services also drive this need.
Due to the consumer sector’s high bandwidth requirements, numerous internet service providers invest in fiber optic infrastructure development in their regions, thereby driving the global market. The global broadband services market is expected to grow at a CAGR of 8.8% until 2031.
Further, the increasing demand for affordable smart wireless devices is likely to drive the growth of the wireless internet industry. According to a report by ReportLinker, the global wireless internet services market is estimated to reach $921.97 billion by 2027, growing at a 7% CAGR.
With these favorable trends in mind, let’s delve into the fundamentals of the three Internet stocks worth adding to your watchlist, beginning with the third choice.
Stock #3: TrueCar, Inc. (TRUE)TRUE operates as an internet-based information, technology, and communication services company in the United States. It operates its platform on the TrueCar website and mobile applications. Its platform enables users to obtain market-based pricing data on new and used cars, and to connect with its network of TrueCar certified dealers.
TRUE’s trailing-12-month gross profit margin of 90.30% is 84.7% higher than the industry average of 48.90%, while its trailing-12-month CAPEX/Sales of 8.32% is 103.6% higher than the industry average of 4.09%.
TRUE’s revenues for the fiscal third quarter that ended September 30, 2023, increased 5.4% year-over-year to $41.15 million. Its net loss declined 89.8% year-over-year to $7.88 million and net loss per share declined 89.4% year-over-year to $0.09.
The consensus revenue estimate of 41.85 million for the fiscal fourth quarter ending December 2023 represents a 14.1% increase year-over-year.
The stock has gained 64.6% over the past six months to close the last trading session at $3.62.
TRUE’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has a B grade in Growth, Sentiment and Momentum. It is ranked #5 out of 28 stocks in the Internet - Services industry.
Click here to see the other ratings of TRUE (Value, Quality, and Stability).
Stock #2: Travelzoo (TZOO)
TZOO operates as an Internet media company that engages in the provision of travel, entertainment, and local deals from travel and entertainment companies, and
TZOO’s trailing-12-month gross profit of 86.67% is 77.2% higher than the industry average of 48.90%. Its trailing-12-month levered EBIT margin of 17.91% is 127.7% higher than the industry average of 8.08%.
For the fiscal third quarter that ended September 30, 2023, TZOO’s revenue increased 33% year-over-year to $20.60 million. The net income and income per share grew 201.1% and 166.7% from the prior year’s quarter to $2.40 million and $0.16, respectively.
Street expects TZOO’s revenue to increase 15.5% year-over-year to $21.49 million for the fiscal fourth quarter ending December 2023. Its EPS is expected to grow marginally year-over-year to $0.23 for the same quarter. Also, the company topped the consensus EPS and revenue estimates in three of the four trailing quarters.
Over the past month, the stock has surged 4.3% to close the last trading session at $9.69.
TZOO’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
It has an A grade for Quality and Sentiment and a B in Value. Within the same industry, it is ranked #4.
Beyond what is stated above, we’ve also rated TZOO for Momentum, Growth, and Stability. Get all TZOO ratings here.
Stock #1: Similarweb Ltd. (SMWB)
Headquartered in Givatayim, Israel, SMWB provides a platform for digital intelligence in the United States, Europe, Asia Pacific, the United Kingdom, Israel, and internationally. It offers digital research intelligence solutions that allow senior leaders, strategy, business intelligence, and consumer insights teams to benchmark performance against competitors and market leaders.
SMWB’s trailing-12-month gross profit of 76.93% is 56.6% higher than the industry average of 49.14%. Its trailing-12-month asset turnover ratio of 0.90x is 46.4% higher than the industry average of 0.62x.
For the fiscal third quarter that ended September 30, 2023, SMWB’s revenue increased 9.6% year-over-year to $54.83 million. Net loss and net loss per share attributable to ordinary shareholders declined 77% and 78.6% from the prior year’s quarter to $4.84 million and $0.06, respectively.
Analysts expect SMWB’s revenue to increase 8.6% year-over-year to $55.77 million for the fiscal fourth quarter ending December 2023. Its EPS is expected to be $0.02 for the same quarter. Also, the company topped the consensus EPS estimates in each of the four trailing quarters.
Over the past month, the stock has surged 5.2% to close the last trading session at $5.31.
It’s no surprise that SMWB has an overall rating of B, which equates to Buy in our proprietary rating system.
It has an A grade for Sentiment and a B in Growth. Within the same industry, it is ranked #2.
In addition to the POWR Ratings stated above, one can access SMWB's ratings for Momentum, Value, Quality, and Stability here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
SMWB shares were trading at $5.15 per share on Thursday morning, down $0.16 (-3.01%). Year-to-date, SMWB has declined -19.91%, versus a 26.61% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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