Consumer internet businesses are redefining how people engage with the world by giving them instant connectivity and convenience. The new habits they’re cultivating are also unlocking the next leg of growth for the industry, which has gained 12.3% over the past six months compared to 8.6% for the S&P 500.
However, long-term winners that can stand the test of time are rare in this space because competition is fierce with many well-capitalized companies. On that note, here are two internet stocks boasting durable advantages and one we’re swiping left on.
One Consumer Internet Stock to Sell:
Shutterstock (SSTK)
Market Cap: $777.9 million
Originally featuring a library that included many of founder Jon Oringer’s photos, Shutterstock (NYSE: SSTK) is now a digital platform where customers can license and use hundreds of millions of pieces of content.
Why Are We Wary of SSTK?
- Customer spending has dipped by 5.4% on average as it focused on growing its requests
- Estimated sales growth of 1.6% for the next 12 months implies demand will slow from its three-year trend
- Free cash flow margin shrank by 16.5 percentage points over the last few years, suggesting the company is consuming more capital to stay competitive
At $21.93 per share, Shutterstock trades at 6x forward EV/EBITDA. Check out our free in-depth research report to learn more about why SSTK doesn’t pass our bar.
Two Consumer Internet Stocks to Buy:
Remitly (RELY)
Market Cap: $3.93 billion
With Amazon founder Jeff Bezos as an early investor, Remitly (NASDAQ: RELY) is an online platform that enables consumers to safely and quickly send money globally.
Why Should You Buy RELY?
- Active Customers are rising, meaning the company can increase revenue without incurring additional customer acquisition costs if it can cross-sell additional products and features
- Additional sales over the last three years increased its profitability as the 76.4% annual growth in its earnings per share outpaced its revenue
- Free cash flow margin increased by 33.7 percentage points over the last few years, giving the company more capital to invest or return to shareholders
Remitly’s stock price of $19.05 implies a valuation ratio of 17.7x forward EV/EBITDA. Is now the right time to buy? Find out in our full research report, it’s free.
MercadoLibre (MELI)
Market Cap: $123.2 billion
Originally started as an online auction platform, MercadoLibre (NASDAQ: MELI) is a one-stop e-commerce marketplace and fintech platform in Latin America.
Why Will MELI Outperform?
- Unique Active Buyers have increased by an average of 20.7% annually, giving it the potential for margin-accretive growth if it can develop valuable complementary products and features
- Grip over its ecosystem is highlighted by its ability to grow engagement while increasing the average revenue per user by 15.5% annually
- Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends, and its rising cash conversion increases its margin of safety
MercadoLibre is trading at $2,427 per share, or 24.4x 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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