Consumer internet businesses are redefining how people engage with the world by giving them instant connectivity and convenience. Despite the tailwinds, their demand largely hinges on consumer spending habits, which investors believe are weakening. As a result, the industry has pulled back by 29.8% over the past six months. This performance was much worse than the S&P 500’s 5.5% decline.
The elite companies can churn out earnings growth under any circumstance, however, and our mission at StockStory is to help you find them. On that note, here are two internet stocks we think can generate sustainable market-beating returns and one we’re swiping left on.
One Consumer Internet Stock to Sell:
EverQuote (EVER)
Market Cap: $555.6 million
Aiming to simplify a once complicated process, EverQuote (NASDAQ: EVER) is an online insurance marketplace where consumers can compare and purchase various types of insurance from different providers
Why Does EVER Fall Short?
- High marketing expenses suggest it needs to spend heavily on new customer acquisition to sustain momentum
EverQuote’s stock price of $15.74 implies a valuation ratio of 3.7x forward EV/EBITDA. To fully understand why you should be careful with EVER, check out our full research report (it’s free).
Two Consumer Internet Stocks to Watch:
Pinterest (PINS)
Market Cap: $11.75 billion
Created with the idea of virtually replacing paper catalogues, Pinterest (NYSE: PINS) is an online image and social discovery platform.
Why Does PINS Stand Out?
- Monthly Active Users have increased by an average of 11.4% annually, giving it the potential for margin-accretive growth if it can develop valuable complementary products and features
- Performance over the past three years shows its incremental sales were extremely profitable, as its annual earnings per share growth of 38.2% outpaced its revenue gains
- Robust free cash flow margin of 27.9% gives it many options for capital deployment, and its improved cash conversion implies it’s becoming a less capital-intensive business
At $18.39 per share, Pinterest trades at 7.2x forward EV/EBITDA. Is now the time to initiate a position? Find out in our full research report, it’s free.
Electronic Arts (EA)
Market Cap: $51.02 billion
Best known for its Madden NFL and FIFA sports franchises, Electronic Arts (NASDAQ: EA) is one of the world’s largest video game publishers.
Why Does EA Catch Our Eye?
- Brand halo makes it a customer acquisition machine that onboards new users at scale without spending much money
- Excellent EBITDA margin of 35.3% highlights the efficiency of its business model
- EA is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders, and its recently improved profitability means it has even more resources to invest or distribute
Electronic Arts is trading at $203.93 per share, or 16.6x forward EV/EBITDA. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.
High-Quality Stocks for All Market Conditions
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