Whether it be online shopping or social media, secular forces are propelling consumer internet businesses forward. But it’s not all sunshine and rainbows as consumer purchasing power can make or break demand. Unfortunately, the market seems to believe stormy skies are ahead as the industry has shed 29.8% over the past six months. This drawdown was noticeably worse than the S&P 500’s 5.5% fall.
Only some companies are subject to these dynamics, however, and a handful of high-quality businesses can deliver earnings growth in any environment. With that said, here are two internet stocks boasting durable advantages and one we’re steering clear of.
One Consumer Internet Stock to Sell:
Coupang (CPNG)
Market Cap: $34.52 billion
Founded in 2010 by Harvard Business School student Bom Kim, Coupang (NYSE: CPNG) is an e-commerce giant often referred to as the "Amazon of South Korea".
Why Do We Think Twice About CPNG?
- Gross margin of 29.1% is below its competitors, leaving less money to invest in areas like marketing and R&D
- Low free cash flow margin of 2.4% for the last two years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
Coupang’s stock price of $18.89 implies a valuation ratio of 2.9x forward price-to-gross profit. Read our free research report to see why you should think twice about including CPNG in your portfolio.
Two Consumer Internet Stocks to Watch:
Booking (BKNG)
Market Cap: $133.4 billion
Formerly known as The Priceline Group, Booking Holdings (NASDAQ: BKNG) is the world’s largest online travel agency.
Why Are We Fans of BKNG?
- Platform is difficult to replicate at scale and results in a best-in-class gross margin of 86.7%
- Share repurchases over the last three years enabled its annual earnings per share growth of 31.4% to outpace its revenue gains
- Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends
At $4,218 per share, Booking trades at 12x forward EV/EBITDA. Is now a good time to buy? Find out in our full research report, it’s free.
Netflix (NFLX)
Market Cap: $406 billion
Launched by Reed Hastings as a DVD mail rental company until its famous pivot to streaming in 2007, Netflix (NASDAQ: NFLX) is a pioneering streaming content platform.
Why Is NFLX a Good Business?
- Has the opportunity to boost monetization through new features and premium offerings as its global streaming paid memberships have grown by 15.7% annually over the last two years
- Highly efficient business model is illustrated by its impressive 29.8% EBITDA margin, and its rise over the last few years was fueled by some leverage on its fixed costs
- Free cash flow margin increased by 15.8 percentage points over the last few years, giving the company more capital to invest or return to shareholders
Netflix is trading at $96.03 per share, or 23.8x forward EV/EBITDA. Is now the time to initiate a position? See for yourself in our full research report, it’s free.
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