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2 Internet Stocks to Buy From a Prospering Industry
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The Zacks Internet - Content industry is benefiting from solid demand for digital offerings, as well as the increasing importance of video content and cloud-based applications. The proliferation of AI and rapid deployment of generative AI is benefiting industry players. Participants like Shutterstock (SSTK - Free Report) and Opera Limited (OPRA - Free Report) are expanding their presence across social media, display and connected TV, and search, driving top-line growth. However, the industry has been suffering from challenging macroeconomic conditions globally. Persistent inflation and higher interest rates are having a detrimental effect on ad spending, the primary revenue source for the industry participants. The ongoing war between Russia and Ukraine, as well as in Israel, has been an overhang on the prospects of the industry participants.
Industry Description
The Zacks Internet - Content industry comprises providers of video encoding platforms, personal services, Internet content and information, staffing and outsourcing services, publishing, capital markets, media-based, home service, digital insights and measurement, stock photo, video and music licensing, and online travel companies. The industry is witnessing a rapid change in consumer behavior and ongoing digitalization. Advertising is a major revenue source for industry participants. Therefore, these companies are trying to expand their digital presence to win customers. They are also expanding their presence across social media, display and connected TV, and search. Apart from the United States, a number of companies in this industry are located in Israel, the U.K., Germany, Russia and China.
3 Trends Shaping the Future of the Internet - Content Industry
Demand for Digital Offerings Growing: The industry is characterized by rapid technological change, frequent product and service introductions, and evolving standards. An expanding range of mobile, digital and cloud-based offerings by industry participants is a major growth driver. Moreover, the proliferation of smart devices and increasing automation of the application development process bodes well.
Industry Prospects Driven by Ad Spending Rate: Industry participants are focusing on marketing efforts to boost traffic to websites. Advertising and subscriptions are major revenue sources for these companies. Also, the industry is dependent on consumer spending trends, making holiday spending a major deciding factor. However, macroeconomic challenges, lingering effects of the pandemic, raging inflation and higher interest rates are expected to hurt ad spending in the near term.
Increasing Regulations Mar Prospects: Industry participants involved in online search and other social networking activities are increasingly facing regulatory pressure, particularly in China and the European Union (“EU”). The China government has a number of regulations related to direct advertising, which is a prime revenue source for these companies. The implementation of the General Data Protection Regulation, which took effect on May 25, 2018, in the EU, adds to the concerns. Enactment of the Digital Markets Act (DMA) in the EU aims to prevent large online platforms, which connect users with content, goods, information and services, from abusing their market power. The DMA further adds to the headwind already faced by Internet content providers in the EU.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Internet - Content industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #96, which places it in the top 38% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Underperforms S&P and Sector
The Zacks Internet - Content industry has underperformed the broader Zacks Computer and Technology sector, as well as the S&P 500 composite over the past year.
The industry has risen 19.8% over this period compared with the 25.3% growth of the S&P 500 and the 39.3% increase of the broader sector.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month price-to-sales ratio (P/S), which is a commonly used multiple for valuing Internet - Content stocks, we see that the industry is currently trading at 9.39X compared with the S&P 500’s 5.26X and the sector’s 7X.
Over the last five years, the industry has traded as high as 13.34X and as low as 6.64X, with the median being 8.28X, as the charts below show.
Trailing 12-Month Price-to-Sales (P/S) Ratio
2 Internet Stocks to Buy
Shutterstock: Strong demand from larger customers is benefiting SSTK. Total traffic increased 18% year over year, driven by Shutterstock’s efforts to drive SEO growth and investments in paid marketing. Its latest acquisition of Envato strengthens portfolio offerings.
The Zacks Consensus Estimate for this Zacks Rank #1 (Strong Buy) company’s 2024 earnings of $4.48 per share has been unchanged over the past 30 days. You can see the complete list of today’s Zacks #1 Rank stocks here.
SSTK shares have lost 16.9% in the year-to-date period.
Price and Consensus: SSTK
Opera Limited: This Zacks Rank #2 (Buy) company is benefiting from its strong advertising business. Opera One powered by its browser AI, Aria, has been a great success. Opera GX has reached 29.5 million users, up 6.1% sequentially. Monetization of the GX user base continues to grow, reaching $3.49 in the first quarter, up 10% year over year.
The Zacks Consensus Estimate for Opera’s 2024 earnings has been steady at 78 cents per share over the past 30 days.
OPRA’s shares have gained 14.7% year to date.
Price and Consensus: OPRA
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Image: Shutterstock
2 Internet Stocks to Buy From a Prospering Industry
The Zacks Internet - Content industry is benefiting from solid demand for digital offerings, as well as the increasing importance of video content and cloud-based applications. The proliferation of AI and rapid deployment of generative AI is benefiting industry players. Participants like Shutterstock (SSTK - Free Report) and Opera Limited (OPRA - Free Report) are expanding their presence across social media, display and connected TV, and search, driving top-line growth. However, the industry has been suffering from challenging macroeconomic conditions globally. Persistent inflation and higher interest rates are having a detrimental effect on ad spending, the primary revenue source for the industry participants. The ongoing war between Russia and Ukraine, as well as in Israel, has been an overhang on the prospects of the industry participants.
Industry Description
The Zacks Internet - Content industry comprises providers of video encoding platforms, personal services, Internet content and information, staffing and outsourcing services, publishing, capital markets, media-based, home service, digital insights and measurement, stock photo, video and music licensing, and online travel companies. The industry is witnessing a rapid change in consumer behavior and ongoing digitalization. Advertising is a major revenue source for industry participants. Therefore, these companies are trying to expand their digital presence to win customers. They are also expanding their presence across social media, display and connected TV, and search. Apart from the United States, a number of companies in this industry are located in Israel, the U.K., Germany, Russia and China.
3 Trends Shaping the Future of the Internet - Content Industry
Demand for Digital Offerings Growing: The industry is characterized by rapid technological change, frequent product and service introductions, and evolving standards. An expanding range of mobile, digital and cloud-based offerings by industry participants is a major growth driver. Moreover, the proliferation of smart devices and increasing automation of the application development process bodes well.
Industry Prospects Driven by Ad Spending Rate: Industry participants are focusing on marketing efforts to boost traffic to websites. Advertising and subscriptions are major revenue sources for these companies. Also, the industry is dependent on consumer spending trends, making holiday spending a major deciding factor. However, macroeconomic challenges, lingering effects of the pandemic, raging inflation and higher interest rates are expected to hurt ad spending in the near term.
Increasing Regulations Mar Prospects: Industry participants involved in online search and other social networking activities are increasingly facing regulatory pressure, particularly in China and the European Union (“EU”). The China government has a number of regulations related to direct advertising, which is a prime revenue source for these companies. The implementation of the General Data Protection Regulation, which took effect on May 25, 2018, in the EU, adds to the concerns. Enactment of the Digital Markets Act (DMA) in the EU aims to prevent large online platforms, which connect users with content, goods, information and services, from abusing their market power. The DMA further adds to the headwind already faced by Internet content providers in the EU.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Internet - Content industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #96, which places it in the top 38% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Underperforms S&P and Sector
The Zacks Internet - Content industry has underperformed the broader Zacks Computer and Technology sector, as well as the S&P 500 composite over the past year.
The industry has risen 19.8% over this period compared with the 25.3% growth of the S&P 500 and the 39.3% increase of the broader sector.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month price-to-sales ratio (P/S), which is a commonly used multiple for valuing Internet - Content stocks, we see that the industry is currently trading at 9.39X compared with the S&P 500’s 5.26X and the sector’s 7X.
Over the last five years, the industry has traded as high as 13.34X and as low as 6.64X, with the median being 8.28X, as the charts below show.
Trailing 12-Month Price-to-Sales (P/S) Ratio
2 Internet Stocks to Buy
Shutterstock: Strong demand from larger customers is benefiting SSTK. Total traffic increased 18% year over year, driven by Shutterstock’s efforts to drive SEO growth and investments in paid marketing. Its latest acquisition of Envato strengthens portfolio offerings.
The Zacks Consensus Estimate for this Zacks Rank #1 (Strong Buy) company’s 2024 earnings of $4.48 per share has been unchanged over the past 30 days. You can see the complete list of today’s Zacks #1 Rank stocks here.
SSTK shares have lost 16.9% in the year-to-date period.
Price and Consensus: SSTK
Opera Limited: This Zacks Rank #2 (Buy) company is benefiting from its strong advertising business. Opera One powered by its browser AI, Aria, has been a great success. Opera GX has reached 29.5 million users, up 6.1% sequentially. Monetization of the GX user base continues to grow, reaching $3.49 in the first quarter, up 10% year over year.
The Zacks Consensus Estimate for Opera’s 2024 earnings has been steady at 78 cents per share over the past 30 days.
OPRA’s shares have gained 14.7% year to date.
Price and Consensus: OPRA