Consumer internet businesses are redefining how people engage with the world by giving them instant connectivity and convenience. These themes have enabled rapid growth for the industry, which has posted a 6.1% gain over the past six months compared to 4.1% for the S&P 500.
Although these companies have produced results, only those with the widest moats will survive as emerging red-hot players pop up regularly to take their slice of the pie. On that note, here is one resilient internet stock at the top of our wish list and two that may face trouble.
Two Consumer InternetStocks to Sell:
Angi (ANGI)
Market Cap: $791.8 million
Created by IAC’s mergers of Angie’s List and HomeAdvisor, ANGI (NASDAQ: ANGI) operates the largest online marketplace for home services in the US.
Why Do We Think Twice About ANGI?
- Service Requests have declined by 24.1% annually over the last two years, suggesting it may need to revamp its features or user experience to stay competitive
- Projected sales decline of 9.7% over the next 12 months indicates demand will continue deteriorating
- High marketing expenses suggest it needs to spend heavily on new customer acquisition to sustain momentum
Angi is trading at $16.50 per share, or 5.5x forward EV/EBITDA. Dive into our free research report to see why there are better opportunities than ANGI.
Chegg (CHGG)
Market Cap: $153.5 million
Started as a physical textbook rental service, Chegg (NYSE:CHGG) is now a digital platform addressing student pain points by providing study and academic assistance.
Why Should You Dump CHGG?
- Struggled with new customer acquisition as its services subscribers averaged 13.4% declines
- Overall productivity fell over the last few years as its plummeting sales were accompanied by a decline in its EBITDA margin
- Performance over the past three years shows each sale was less profitable as its earnings per share dropped by 30.8% annually, worse than its revenue
At $1.45 per share, Chegg trades at 2.4x forward EV/EBITDA. If you’re considering CHGG for your portfolio, see our FREE research report to learn more.
One Consumer Internet Stock to Watch:
Lyft (LYFT)
Market Cap: $6.21 billion
Founded by Logan Green and John Zimmer as a long-distance intercity carpooling company Zimride, Lyft (NASDAQ: LYFT) operates a ridesharing network in the US and Canada.
Why Do We Like LYFT?
- Has the opportunity to boost monetization through new features and premium offerings as its active riders have grown by 10.1% annually over the last two years
- Incremental sales significantly boosted profitability as its annual earnings per share growth of 72.9% over the last three years outstripped its revenue performance
- Free cash flow margin expanded by 23.3 percentage points over the last few years, providing additional flexibility for investments and share buybacks/dividends
Lyft’s stock price of $14.76 implies a valuation ratio of 12.2x forward EV/EBITDA. Is now a good time to buy? Find out in our full research report, it’s free.
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