The internet sector is rapidly expanding as a result of increased demand for online services and the convenience of online platforms, and businesses are expected to capitalize on these opportunities in the future.
However, as macroeconomic uncertainties remain, I think it would be wise to wait for a better entry point in Bumble Inc. (BMBL). In addition, Snap Inc. (SNAP) is best avoided, considering its weak fundamentals.
Before delving deeper into the fundamentals of these stocks, let’s discuss what’s happening in the internet industry.
Despite global competition challenges, the internet industry is experiencing a surge in digital service adoption and increasing usage in e-commerce, entertainment, and remote work. The global broadband internet services market is expected to grow to $500.57 billion in 2028 at a CAGR of 4%.
However, the internet service industry faces challenges in terms of innovation, infrastructure adaptation to new technology, and meeting rising bandwidth demands as internet usage for streaming, gaming, and remote work grows.
The Internet of Things (IoT), a network of connected and exchanging data devices, confronts security concerns such as a lack of encryption, poor testing, brute force, malware, ransomware, and botnets. Because of weak credentials, default passwords, and encryption, IoT devices are vulnerable to attacks.
Let’s delve deeper into the fundamentals of the stocks mentioned above.
Stock to Hold:
Bumble Inc. (BMBL)
BMBL provides online dating and social networking platforms in North America, Europe, internationally.
BMBL’s trailing-12-month levered FCF margin of 18.89% is 138.1% higher than the industry average of 7.93%. Its trailing-12-month ROTC of 1.38% is 60.3% lower than the industry average of 3.48%.
For the fiscal third quarter that ended September 30, 2023, BMBL’s revenue increased 18.4% year-over-year to $275.51 million. Its operating earnings rose 5.8% year-over-year to $30 million.
However, its net earnings declined 7.7% year-over-year to $16.67 million. Its EPS came in at $0.12, decreased 14.3% year-over-year.
Analysts expect BMBL’s EPS and revenue for the year ending December 31, 2024, to increase 82.8% and 13.4% year-over-year to $0.49 and $1.19 billion, respectively. Shares of BMBL has gained over the past three months to close the last trading session at $13.77.
BMBL’s POWR Ratings reflect this uncertain outlook. The stock has an overall rating of C, equating to a Neutral in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
BMBL also has a C grade for Value, Stability, Sentiment and Momentum. It is ranked #40 out of 54 stocks in the Internet industry. Click here for the additional POWR Ratings for Growth and Quality for BMBL.
Stock to Sell:
Snap Inc. (SNAP)
SNAP operates as a technology company in North America, Europe, and internationally. The company offers Snapchat, a visual messaging application with various tabs, such as camera, visual messaging, snap map, stories, and spotlight, that enable people to communicate visually through short videos and images.
SNAP’s trailing-12-month EBIT margin of negative 30.46% compared to the industry average of 8.56%. Its trailing-12-month EBITDA margin of negative 26.84% compared to the industry average of 19.35%.
SNAP’s revenue for the third quarter that ended September 30, 2023, came in at $1.19 billion. Its operating loss narrowed 12.7% year-over-year to $380.06 million. Its adjusted EBITDA came in at $40.09 million, down 44.8% over the prior-year quarter.
Moreover, the company’s non-GAAP net loss widened 2.4% year-over-year to $368.26 million. And its non-GAAP net loss per share decreased 75% year-over-year to come in at $0.02.
Street expects SNAP’s EPS to come in at negative $0.04 for the first quarter ending March 2024. The stock has lost 4.4% over the past month to close the last trading session at $16.42.
SNAP’s has an overall D rating, equating to a Sell in our POWR Ratings system.
It also has a D grade for Stability, Sentiment and Quality. It is ranked last in the same industry. Beyond what is stated above, we’ve also rated SNAP for Growth, Value and Momentum. Get all SNAP ratings here.
What To Do Next?
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
BMBL shares were trading at $14.09 per share on Monday afternoon, up $0.32 (+2.32%). Year-to-date, BMBL has declined -4.41%, versus a 1.85% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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