With the growing adoption and expanding Internet of things (IoT) market globally, the internet industry is well-positioned to soar. Given its solid financials and growth potential, it could be wise to invest in Shutterstock (SSTK) in the internet space. However, Shopify (SHOP) and DoorDash (DASH) might be best avoided now because of their weak fundamentals. Read more….
The internet is undeniably one of the most vital innovations, as it allows a wide exchange of information and ideas and connects people globally. The internet industry gained immense traction during the pandemic as conditions compelled businesses to operate remotely.
According to DataReportal, a total of 5.16 billion people around the world use the internet at the start of 2023, equating to 64.4% of the world's total population. Moreover, current trends indicate that two-thirds of the global population should be online by the end of this year.
Further, the Internet of Things (IoT) is believed to be the next wave as it is building intelligent communication environments and leading to real-time analytics, more efficient operations, and predictive capabilities. The global IoT market size is projected to reach $650.50 billion by 2026, growing at a CAGR of 16.7%.
Increasing adoption of smartphones and other advanced gadgets, rising investments in cloud-based services, and emerging 5G technology to help IoT adoption are driving the internet industry's growth.
However, the technology sector suffered a blood bath last year, and several stocks faced heavy losses. Record-high inflation compelled the Fed to turn ultra-hawkish with a tight monetary policy. The tech-heavy Nasdaq Composite index is down 15.2% over the past year.
With innovations unfolding daily, some internet stocks are well-positioned to soar, while others may struggle to stay afloat amid the macroeconomic headwinds.
Given this backdrop, investors could buy fundamentally sound Shutterstock, Inc. (SSTK) hand over fist right now. At the same time, due to weak fundamentals and bleak growth prospects, Shopify Inc. (SHOP) and DoorDash, Inc. (DASH) might be best avoided.
Stock to Buy:
Shutterstock, Inc. (SSTK)
SSTK is a technology company that provides quality content and creative workflow solutions internationally. It offers image services consisting of photographs, vectors, and illustrations used in visual communications. SSTK provides services under the Shutterstock, Bigstock, Offset, TurboSquid, and PremiumBeat brands.
On January 31, 2023, the company announced a dividend of $0.27 per share of outstanding common stock, representing an increase of 13% over the previous quarter. This dividend is payable on March 16, 2023. SSTK's four-year average dividend yield is 1.69%, and its forward annual dividend of $1.08 translates to a 1.41% yield on the current price level.
On January 25, SSTK launched a generative AI to its all-in-one creative platform. The text-to-image technology converts prompts into larger-than-life, ethically created visuals ready for licensing.
Chief Executive Officer at SSTK, Paul Hennessy, said, "Shutterstock has developed strategic partnerships over the past two years with key industry players like OpenAI, Meta, and LG AI Research to fuel their generative AI research efforts, and we are now able to uniquely bring responsibly-produced generative AI capabilities to our own customers."
SSTK's revenue increased 5% year-over-year to $204.09 million in the third quarter that ended September 30, 2022. The company's adjusted net income was $36.17 million, representing a 37.2% year-over-year increase, while its adjusted EPS came in at $1, up 42.9% year-over-year. Also, its adjusted EBITDA grew 26.2% from the prior-year quarter to $56.03 million.
Analysts expect SSTK's EPS to increase 25.1% year-over-year to $0.96 for the quarter that ended on December 31, 2022. It surpassed the consensus EPS estimates in three of the trailing four quarters. Its revenue is expected to be $202.43 million in the first quarter (ending March 31, 2023), representing a 1.7% year-over-year rise.
Shares of SSTK have gained 69.1% over the past three months to close the last trading session at $77.63.
SSTK's POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Quality. SSTK is ranked #3 out of 29 stocks within the Internet – Services industry. To see SSTK's ratings for Growth, Value, Momentum, Stability, and Sentiment, click here.
Stocks to Avoid:
Shopify Inc. (SHOP)
Headquartered in Ottawa, Canada, SHOP is a cloud-based, multi-channel commerce platform that offers subscription and merchant solutions to small and medium-sized businesses. Its platform enables merchants to display, manage, market, and sell their products through various sales channels.
In the fiscal third quarter (ended September 30, 2022), SHOP's operating expenses increased 64.4% year-over-year to $1.01 billion. Its operating loss widened significantly from the previous year's quarter to $345.37 million.
The company's net loss and loss per share attributable to common shareholders amounted to $158.41 million and $0.12, compared to a net income and EPS of $1.15 billion and $0.90 from the prior-year period, respectively.
In terms of forward EV/Sales and Price/Sales, SHOP is trading at 11.55x and 12.21x, 281.6% and 296.8% higher than the industry averages of 3.03x and 3.08x, respectively. Also, its forward Price/Book multiple of 7.85 compares to the industry average of 4.26.
Analysts expect SHOP's EPS for the fiscal year 2022 to remain negative. The stock has declined 41.1% over the past year to close the last trading session at $51.57.
SHOP's POWR Ratings reflect this bleak outlook. The stock has an overall rating of D, which translates to Sell in our proprietary rating system.
It has a D grade for Value, Stability, and Quality. It is ranked #27 out of 29 stocks in the same industry. Click here to see the additional ratings of SHOP (Growth, Momentum, and Sentiment).
DoorDash, Inc. (DASH)
DASH engages in providing a local logistics platform that connects merchants, consumers, and dashers. Its operations include DoorDash marketplace, DoorDash Drive, and DoorDash Storefront.
In the third quarter that ended September 30, 2022, DASH's total cost and expenses increased 46.1% year-over-year to $2.01 billion. Its loss from operations and attributable net loss widened 208% and 192.1% year-over-year to $308 million and $295 million, respectively. The company's loss per share amounted to $0.77, up 156.7% year-over-year.
In terms of forward non-GAAP P/E, DASH is trading at 621.41x, significantly higher than the industry average of 15.06x. The stock's forward EV/EBITDA multiple of 54.77 is 439.6% higher than the industry average of 10.15. Also, its forward Price/Cash Flow multiple of 47.81 compares to the industry average of 11.74.
The consensus EPS estimate of $0.10 for the fiscal year 2022 (ended December 31, 2022) represents a 72.7% decrease from the prior-year period. Over the past year, the stock has lost 39.4% to close the last trading day at $59.68.
DASH's weak fundamentals are reflected in its POWR Ratings. It has an overall rating of D, equating to Sell in our proprietary rating system.
It has a D grade for Growth, Stability, and Sentiment. Within the same industry, it is ranked #26. Click here to see other ratings of DASH for Value, Momentum, and Quality.
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SSTK shares were unchanged in premarket trading Tuesday. Year-to-date, SSTK has gained 47.25%, versus a 7.16% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
The post 1 Internet Stock to Buy Hand Over Fist and 2 to Avoid appeared first on StockNews.com
