The internet sector is thriving in the digital age due to the high demand for online services, resulting in significant growth and innovation opportunities for businesses. However, as macroeconomic uncertainties remain, I think it would be wise to wait for a better entry point in eBay Inc. (EBAY). 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 increasing usage in e-commerce, entertainment, and remote work. According to Statista, there are 5.18 billion global internet users, connecting two-thirds of the world’s population. The U.S. has over 90% internet access and hosts leading companies.
However, the challenge in the internet service industry is the constant need to upgrade infrastructure and invest in new technologies to accommodate the increasing demand for faster and more reliable internet connections. Furthermore, as cyber threats evolve and grow more sophisticated, ensuring data privacy and cybersecurity has emerged as a critical concern.
The Internet of Things (IoT) is a network of connected and exchanging data devices, however it 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:
eBay Inc. (EBAY)
EBAY operates marketplace platforms that connect buyers and sellers in the United States and internationally. The company’s marketplace platform includes its online marketplace at eBay.com and the eBay suite of mobile apps. Its platforms enable users to list, buy, and sell various products.
EBAY’s trailing-12-month net income margin of 26.99% is 497% higher than the 4.52% industry average. However, its trailing-12-month asset turnover ratio of 0.50x is 49.8% lower than the industry average of 0.99x.
For the fiscal third quarter that ended September 30, 2023, EBAY’s net revenues increased 5% year-over-year to $2.50 billion. Its gross profit rose 3.6% year-over-year to $1.80 billion. Also, its non-GAAP EPS rose 3% over the prior year’s quarter to $1.03.
However, its non-GAAP net income from continuing operations declined 1.3% year-over-year to $545 million.
Analysts expect EBAY’s EPS and revenue for the year ending December 31, 2024, to increase 5.5% and 2.5% year-over-year to $4.42 and $10.30 billion, respectively. It surpassed the consensus EPS estimate in each of the trailing four quarters. Shares of EBAY has gained 5.8% over the past year to close the last trading session at $43.87.
EBAY’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.
EBAY also has a C grade for Value and Stability. It is ranked #23 out of 55 stocks in the Internet industry. Click here for the additional POWR Ratings for Growth, Sentiment, Momentum and Quality for EBAY.
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 8.08%. Its trailing-12-month EBITDA margin of negative 26.84% compared to the industry average of 18.88%.
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 4.7% intraday to close the last trading session at $16.14.
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 #54 in the same industry. Beyond what is stated above, we’ve also rated SNAP for Growth, Sentiment and Momentum. Get all SNAP ratings here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
EBAY shares were trading at $43.25 per share on Wednesday afternoon, down $0.62 (-1.41%). Year-to-date, EBAY has declined -0.85%, versus a -1.28% 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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