Meta Platforms (META), Booking Holdings (BKNG) and Snap (SNAP) – Internet Buy or Sell?

With the increased internet penetration worldwide, there is a considerable surge in online activities like e-commerce, social media, virtual learning, digital payments, and video streaming, among others, creating growth opportunities for companies offering internet-based services.

Given the industry’s strong foothold, it could be wise to invest in fundamentally sound internet stocks Meta Platforms, Inc. (META) and Booking Holdings Inc. (BKNG) for potential gains. However, avoiding struggling Snap Inc. (SNAP) seems prudent now.

The COVID-19 pandemic has resulted in most people taking to the internet and internet-based services to communicate, learn, shop, work, and entertain. With the internet user numbers swelling up since the pandemic, there were nearly 5.18 billion internet users globally as of April 2023, which accounted for 64.6% of the world population, as per Statista.

Social media is one of the most popular online activities. In 2022, more than 4.59 billion people were using social media worldwide, and this number is expected to increase to around 6 billion in 2027. On average, internet users spend 151 minutes per day on social media and several messaging apps, compared to 40 minutes since 2015.

In addition, a significant growth in e-commerce, increasing usage of video streaming platforms, and a surge in the use of digital payments create high-growth opportunities for companies offering internet-based services. According to IMARC Group, the global e-commerce market is projected to reach $70.90 trillion by 2028, growing at a CAGR of 27.4%.

Favorable government initiatives to make the internet more accessible would boost the internet industry’s prospects. The Broadband Equity, Access, and Deployment (BEAD) Program allocates $42.45 billion from President Biden’s Bipartisan Infrastructure Law to expand high-speed internet access by funding planning, infrastructure deployment, and adoption plans.

Further, introducing new advanced technologies such as 5G propels the industry’s outlook. 5G is a new global wireless standard after 1G, 2G, 3G, and 4G networks and delivers higher data speeds, more reliability, massive network capacity, and an improved user experience.

As of 2023, 5G mobile subscriptions are estimated to reach 1.9 billion worldwide. This figure is expected to grow to 5.9 billion by 2027.

Investors’ interest in internet stocks is evident from First Trust Dow Jones Internet Index Fund’s (FDN) 17.1% returns over the past six months.

With these favorable trends in mind, let’s take a look at the fundamentals of the three Internet stocks, starting with number 3.

Stock to Sell:

Stock #3: Snap Inc. (SNAP)

SNAP operates as a technology company internationally. The company offers Snapchat, a visual messaging application with tabs like camera, snap, visual messaging, stories, and spotlight; Spectacles, an eyewear product that connects with Snapchat and captures photos and video from a human perspective; and advertising products like AR ads and Snap ads.

According to a Reuters report, SNAP is under scrutiny from Britain’s data regulator over underage users. The UK-based data regulator is gathering information on Snapchat to establish whether the company enforces age restrictions on its platform. Under UK data protection law, social media firms need parental consent before processing data of children under 13.

Before initiating any official investigation, the ICO (Information Commissioner’s Office) generally gathers information about an alleged breach. A decision on launching a formal investigation into Snapchat could be made in the upcoming months.

SNAP’s trailing-12-month net income margin of negative 30.19% compares to the industry average of 4.13%. Moreover, its trailing-12-month ROCE and ROTA of negative 45.52% and negative 17.66% compare unfavorably to the industry averages of 4.12% and 1.55%, respectively.

For the second quarter that ended June 30, 2023, SNAP’s revenue decreased 3.9% year-over-year to $1.07 billion. Its operating loss came in at $404.34 million. Its adjusted EBITDA loss was $38.48 million, compared to an adjusted EBITDA of $7.19 million. The company reported non-GAAP net loss and non-GAAP net loss per share of $33 million and $0.02, respectively.

In addition, the company’s cash outflow from operating activities stood at $81.94 million for the quarter, while its free cash flow was negative $118.88 million.

Analysts expect SNAP’s revenue for the fiscal year (ending December 2023) to decrease 2% year-over-year to $4.51 billion. The company’s EPS for the current year is expected to decline 94% from the prior year to $0.01. Also, it missed the consensus revenue estimate in three of the trailing four quarters, which is disappointing.

Shares of SNAP have plunged 15.3% over the past six months and 18.8% over the past year to close the last trading session at $9.03.

SNAP’s bleak fundamentals are reflected in its POWR Ratings. The stock has an overall rating of D, translating to a Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

SNAP has an F grade for Sentiment and a D for Growth, Stability, and Quality. Within the Internet industry, it is ranked #57 out of 59 stocks.

Beyond what is stated above, we’ve also rated SNAP for Momentum and Value. Get all SNAP ratings here.

Stocks to Buy:

Stock #2: Booking Holdings Inc. (BKNG)

BKNG offers travel and restaurant online reservations and related services globally. The company operates Booking.com, which provides online accommodation reservations; Rentalcars.com, which offers online rental car reservation services; and Priceline, which provides online travel reservation services and vacation packages. Also, it operates KAYAK, an online meta-search service.

On September 13, BKNG’s KAYAK, a leading travel search engine, launched its first corporate travel product designed for large companies. KAYAK for Business’ new Enterprise solution offers businesses a wide range of features, including Duty of Care, Advanced Reporting, Group Booking, Guest Booking, and Unused Ticket Management.

On June 28, BKNG launched its new AI Trip Planner to a select group of U.S. travelers through its app. This innovative planner builds upon the company’s well-established machine-learning models, regularly recommending travel destinations and accommodations to millions of users.

In addition, it integrates aspects of OpenAI’s ChatGPT API to provide a novel conversational experience for travelers as they begin their trip-planning process.

BKNG’s trailing-12-month gross profit margin of 86% is 142.6% higher than the 35.45% industry average. And its trailing-12-month net income margin of 23.04% is significantly higher than the industry average of 4.42%. Also, the stock’s trailing-12-month levered FCF margin of 28.46% is 458.6% higher than the industry average of 5.09%.

For the fiscal second quarter, which ended on June 30, 2023, BKNG’s total revenues increased 27.2% year-over-year to $5.46 billion. Its operating income grew 67.3% from the year-ago value to $1.67 billion. Also, the company’s adjusted EBITDA rose 63.7% from the prior year’s quarter to $1.78 billion.

Furthermore, the company’s net income came in at $1.29 billion and $34.89 per share, increases of 50.5% and 65.6% year-over-year, respectively.

The consensus revenue estimate of $21.14 billion for the fiscal year (ending December 2023) represents a 23.7% increase year-over-year. The consensus EPS estimate of $146.60 for the ongoing year indicates a 46.9% year-over-year improvement. Moreover, BKNG has surpassed the consensus revenue and EPS estimates in each of the trailing four quarters.

BKNG’s stock has gained 23.1% over the past six months and 61.8% over the past year to close the last trading session at $3,068.91.

BKNG’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, translating to Buy in our proprietary rating system.

The stock has an A grade for Quality and a B for Sentiment. In the Internet industry, it is ranked #11 of 59 stocks.

Click here to see BKNG ratings for Growth, Momentum, Value, and Stability.

Stock #1: Meta Platforms, Inc. (META)

META develops products that enable people to connect and share with friends and family through mobile devices, personal computers, virtual reality headsets, and wearables worldwide. The company operates in two segments: Family of Apps and Reality Labs. It offers Facebook, Messenger, WhatsApp, and various augmented and virtual reality-related products.

On August 24, the company introduced Code Llama, a code generation model built on Llama 2, capable of generating and discussing code in response to text prompts. Code Llama sets a new standard for coding tasks among publicly available LLMs. Its capabilities can potentially enhance developer workflows, making them faster and more efficient.

On July 18, META and Microsoft Corporation (MSFT) introduced the availability of Llama 2, an open-source language model designed to boost collaboration and knowledge-sharing in the field of AI. It is entirely free for research and commercial use. The strategic developments in the AI field position META for significant growth and profitability.

Also, on July 5, the company launched a new app, Threads, built by the Instagram team. It is a platform for users to share text updates and engage in public conversations, driving the company’s presence in the social media landscape and boosting its revenue stream.

META’s trailing-12-month EBITDA margin of 37.27% is 102.8% higher than the industry average of 18.38%. Likewise, the stock’s trailing-12-month gross profit margin of 79.45% is 60.9% higher than the 49.37% industry average.

For the second quarter that ended June 30, 2023, META’s revenue increased 11% year-over-year to $31.99 billion. Its income from operations grew 12.4% from the year-ago value to $9.39 billion. The company’s net income and EPS stood at $7.79 billion and $2.98, up 16.5% and 21.1% year-over-year, respectively.

Additionally, the company’s free cash flow was $10.96 billion, an increase of 146.2% year-over-year. As of June 30, 2023, its cash, cash equivalents, and marketable securities came in at $53.45 billion.

Street expects META’s revenue for the third quarter (ending September 2023) to increase 20.6% year-over-year to $33.41 billion. The company’s EPS is estimated to grow 117.5% year-over-year to $3.57 for the current quarter. META has topped the consensus revenue estimates in each of the trailing four quarters.

Shares of META have gained 51.5% over the past six months and 140.2% year-to-date to close the last trading session at $299.67.

META’s solid fundamentals are apparent in its POWR Ratings. It has an overall rating of B, translating to Buy in our proprietary rating system.

META has an A grade for Quality and a B for Growth. The stock is ranked #9 within the same industry.

In addition to the POWR Ratings I’ve just highlighted, you can see META’s ratings for Stability, Value, Momentum, and Sentiment here.

43 Year Investment Pro Shares Top Picks

Steve Reitmeister is best known for his timely market outlooks & unique trading plans to stay on the right side of the market action. Click below to get his latest insights…

Steve Reitmeister’s Trading Plan & Top Picks >

META shares fell $4.87 (-1.63%) in premarket trading Thursday. Year-to-date, META has gained 149.02%, versus a 15.97% rise in the benchmark S&P 500 index during the same period.

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

More...