Rapid digitalization and government initiatives are boosting the US internet industry. Hence, fundamentally strong internet stock Expedia Group (EXPE) might be an ideal buy this week. However, as supply chain issues and cyberattacks continue challenging the industry, fundamentally weak ContextLogic (WISH) might be best avoided. Read more.
The government’s plan to provide subsidized internet expansion and increase broadband connections in the US, made possible by regulatory changes, is a significant boost to the US internet industry and the economy as a whole. Moreover, amid the digitalization trends and increased use of smartphones, internet usage has increased considerably.
Therefore, quality internet stock Expedia Group, Inc. (EXPE) could be an ideal investment this month. However, amid supply chain issues and rising privacy threats, fundamentally weak internet stock ContextLogic Inc. (WISH) might be best avoided.
Government initiatives aimed at developing relevant infrastructure are driving the growth of the wireless internet services market. Technology providers and specialists are coming up with creative solutions to design and develop urban infrastructure in various regions.
The global wireless internet services market is projected to expand from $654.86 billion in 2022 to $704.47 billion by this year at a CAGR of 7.6%.
Moreover, the Internet of Things (IoT) market is expanding with the growing adoption of smart technologies. Its revenue is expected to grow at a CAGR of 8.8% to reach $7.37 billion by 2027.
The broadband market has seen significant growth due to an increase in wireless users, and it is crucial for digitalization, productivity, and economic growth. The fiber optic division has been the dominant player in the market, and the global broadband services market is expected to grow at a CAGR of 9.7% between 2023 and 2030.
However, supply chain bottlenecks induced delays and production disruptions continue to impact the internet industry. In addition, cyber threats are on the rise due to increased digitalization.
Stock to Buy:
Expedia Group, Inc. (EXPE)
EXPE operates as an online travel company in the United States and internationally. The company operates through Retail; B2B; and trivago segments. In addition, it offers a range of travel and non-travel verticals, including for corporate travel management, airlines, travel agents, online retailers, and financial institutions.
Its trailing-12-month EBITDA margin of 11.86% is 4.6% higher than the 11.34% industry average. Its trailing-12-month gross profit margin of 85.80% is 145.1% higher than the 35% industry average. Its trailing 12-month EBIT margin of 10.19% is 32.3% higher than the 7.70% industry average.
EXPE’s total revenue increased 14.9% year-over-year to $2.62 billion during the fourth quarter that ended December 31, 2022. Its gross bookings grew 17.5% from the year-ago value to $20.51 billion. Also, the company’s adjusted net income rose 17.4% from the prior year’s quarter to $196 million, while its adjusted EPS increased 18.9% year-over-year to $1.26.
Analysts expect EXPE’s revenue for the current fiscal quarter ending March 2023 to come in at $2.67 billion, indicating an 18.8% year-over-year growth. The company’s EPS is expected to be $0.14.
The stock gained 4.7% year-to-date to close the last trading session at $91.73.
EXPE’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
EXPE also has an A grade in Quality and a B in Value. It is ranked #3 out of 60 stocks in the Internet industry.
For additional ratings for EXPE’s Sentiment, Stability, Growth, and Momentum, click here.
Stock to Sell:
ContextLogic Inc. (WISH)
WISH operates as a mobile e-commerce company in Europe, North America, South America, and internationally. The company operates Wish, an e-commerce platform that connects users to merchants. It also provides marketplace and logistics services to merchants.
Its trailing-12-month asset turnover ratio of 0.55x is 46.3% lower than the 1.02x industry average. Its trailing-12-month gross profit margin of 29.07% is 17% lower than the 35% industry average. Its trailing-12-month CAPEX/Sales of 0.35% is 89.2% lower than the 3.23% industry average.
WISH’s revenue declined 57.4% year-over-year to $123 million during the fourth quarter that ended December 31, 2022. Adjusted EBITDA declined 313% year-over-year to negative $95 million. Gross profit declined 78.3% year-over-year to $26 million during the same quarter.
Also, its net loss increased 89.7% year-over-year to $110 million, while its net loss per share increased 77.8% year-over-year to $0.16.
Street expects WISH’s EPS to decline 86.3% year-over-year to negative $0.11 for the current quarter ending March 2023. Its revenue is expected to decline 36.6% year-over-year to $119.9 million for the same quarter. The stock has failed to surpass the revenue estimates in each of the trailing four quarters, which is disappointing.
The stock has declined 76.8% over the past nine months to close its last trading session at $0.40. It has declined 20.9% over the past month.
WISH’s POWR Ratings reflect this bleak outlook. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system.
WISH has an F grade in Stability and a D in Growth and Quality. It is ranked #59 in the same industry.
Beyond the POWR Rating grades we’ve stated above, WISH’s rating for Momentum, Sentiment, and Value can be seen here.
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EXPE shares were trading at $90.90 per share on Thursday morning, down $0.83 (-0.90%). Year-to-date, EXPE has gained 3.77%, versus a 1.41% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor’s degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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