Netflix, Inc. (NFLX), the undisputed king of the video streaming industry, faces significant challenges such as intensified competition. Therefore, in this article, I have evaluated the fundamentals of three internet stocks, eBay Inc. (EBAY), Meta Platforms, Inc. (META), and Alphabet Inc. (GOOGL), which could be better portfolio additions than NFLX. 

The streaming sector has witnessed explosive growth in recent years. As more market players enter the scene, NFLX’s dominant position is facing growing challenges. For instance, NFLX’s market share in the United States declined to 44.2% in the first quarter, marking a 6% year-on-year decrease. Although it remains the market leader, this decline underscores the intensifying competitiveness of the streaming landscape.

Additionally, despite analysts anticipating a 7.7% year-over-year increase in NFLX’s revenue for the third quarter (ending September 2023), it's worth noting that the company has fallen short of its consensus revenue estimates in three of the trailing four quarters, which is disappointing. Also, NFLX’s trailing-12-month gross profit margin of 38.77% is 21.5% lower than the 49.37% industry average.

On the flip side, internet usage continues to experience significant growth due to the ongoing process of digitalization and the widespread use of smartphones. Additionally, the internet industry's outlook is bolstered by the swift uptake of Artificial Intelligence (AI) and the expansion of 5G connectivity.

At the beginning of the third quarter of 2023, around 5.19 billion people across the globe were using the internet, constituting 64.4% of the total global population. Furthermore, the global 5G connections are set to exceed 1.90 billion by the end of this year. This projection outlines an impressive trajectory, with forecasts indicating 6.80 billion global 5G connections by the conclusion of 2027.

This indicates an annual average growth of nearly one billion new connections, underscoring the significant scope and impact of the 5G technology landscape.

Considering all the above factors, EBAY, META, and GOOGL could prove to be better buys than NFLX to capitalize on the industry tailwinds. To that end, let us dive into the fundamentals of these three Internet industry picks, beginning with number three.

Stock #3: 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.

On July 11, EBAY successfully finalized its acquisition of Certilogo, a company based in Milan that specializes in AI-powered digital IDs and authentication for apparel and fashion products. Certilogo's technology enables brands and designers to oversee the entire lifecycle of their clothing items and offers consumers a convenient way to interact with their preferred brands and fashion items.

By leveraging this acquisition, EBAY aims to provide brands with secure, interconnected product solutions that are adaptable and interoperable.

On June 5, EBAY partnered with Techstars, a prominent pre-seed investor, to jointly launch a new accelerator program called "Techstars Future of Ecommerce powered by eBay.” This program aims to support startups focused on developing innovative technologies that will play a significant role in shaping the future of ecommerce.

EBAY’s trailing-12-month gross profit margin of 72.37% is 104.9% higher than the 35.32% industry average. Its trailing-12-month EBIT margin of 24.48% is 225.3% higher than the industry average of 7.22%. In addition, the stock’s trailing-12-month levered FCF margin of 27.82% is 447.9% higher than the industry average of 5.08%.

In terms of forward EV/EBIT, EBAY’s 8.89x is 34.1% lower than the 13.49x industry average. In terms of its forward non-GAAP P/E, the stock is trading at 10.57x, 28.5% lower than the industry average of 14.77x.

EBAY’s net revenues for the second quarter (ended June 30, 2023) increased 4.9% year-over-year to $2.54 billion, while its gross profit rose 3.6% from the year-ago value to $1.82 billion. Also, its free cash flow came in at $492 million, up 5.6% year-over-year.

In addition, during the same period, the company’s net income amounted to $172 million and $0.32 per share, compared to a net loss of $531 million and $0.95 per share in the same period last year, respectively.

Analysts expect EBAY’s revenue for the fiscal third quarter (ending September 2023) to increase 4.9% year-over-year to $2.50 billion, while its EPS for the same quarter is expected to be $1. Further, EPS is projected to improve by 8.3% per annum over the next five years. Moreover, the company topped its revenue and EPS estimates in each of the trailing four quarters, which is impressive.

The stock has gained 6.8% year-to-date to close the last trading session at $44.29.

EBAY’s POWR Ratings reflect this robust outlook. The stock has an overall B rating, translating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.  

It has an A grade for Quality and a B for Growth. In the 60-stock Internet industry, it is ranked #10. Click here to see EBAY’s ratings for Value, Momentum, Stability, and Sentiment. 

Stock #2: Meta Platforms, Inc. (META)

Social media icon META engages in the development of products that enable people to connect and share with friends and family through mobile devices, personal computers, virtual reality headsets, and wearables worldwide. It operates in two segments: Family of Apps and Reality Labs.

On July 18, META strengthened its longstanding collaboration with Microsoft Corporation (MSFT) by selecting it as the favored partner for Llama 2, an open-source large language model available for free for research and commercial purposes. Access to Llama 2 is being facilitated with the backing of various companies and individuals representing technology, academia, and policy domains.

META’s trailing-12-month gross profit margin of 79.45% is 60.9% higher than the 49.37% industry average. Its trailing-12-month EBITDA margin of 37.27% is 101.5% higher than the industry average of 18.49%. Furthermore, the stock’s trailing-12-month net income margin of 18.71% is 353.1% higher than the industry average of 4.13%.

Also, META’s forward non-GAAP PEG of 1.05x is 25.6% lower than the 1.41x industry average.

For the second quarter that ended June 30, 2023, META’s total revenue increased 11% year-over-year to $31.99 billion, while its income from operations grew 12.4% from the year-ago value to $9.39 billion.

META’s net income and EPS amounted to $7.79 billion and $2.98, representing increases of 16.5% and 21.1%, respectively, from the prior year’s quarter. Also, its free cash flow stood at $10.95 billion, up 146.2% year-over-year.

The consensus revenue estimate of $33.34 billion for the fiscal third quarter (ending September 2023) represents a 20.3% increase year-over-year. The consensus EPS estimate of $3.55 for the current quarter indicates a 116.4% improvement year-over-year. The company has an excellent surprise history, surpassing the consensus revenue estimates in each of the trailing four quarters.

META’s shares have gained 149.4% year-to-date to close the last trading session at $300.15

META’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.

It has an A grade for Quality and a B for Growth and Sentiment. Within the same industry, it is ranked #7. Click here to see the other ratings of META for Value, Momentum, and Stability.

Stock #1: Alphabet Inc. (GOOGL)

Known for its pioneering internet-related services and products, GOOGL offers its various products and platforms internationally. It operates through Google Services; Google Cloud; and Other Bets segments. Its offerings include Android, Chrome, hardware, Gmail, Google Drive, Google Maps, Google Photos, Google Play, Search, and YouTube.

The stock’s trailing-12-month net income margin of 21.05% is 409.9% higher than the 4.13% industry average. Its trailing-12-month levered FCF margin of 23.57% is 194.5% higher than the 8.01% industry average. Also, GOOGL’s trailing-12-month ROCE of 23.33% is 466% higher than the industry average of 4.12%.

In terms of forward non-GAAP PEG, GOOGL’s 1.40x is marginally lower than the 1.41x industry average.

For the second quarter, which ended on June 30, 2023, GOOGL’s revenue increased 7.1% year-over-year to $74.60 billion. Its income from operations came in at $21.84 billion, up 12.3% from the year-ago value.

The company’s net income and EPS rose 14.8% and 19% from the prior-year quarter to $18.37 billion and $1.44, respectively. Moreover, its cash and cash equivalents amounted to $25.93 billion, increasing 32.2% compared to $21.88 billion as of December 31, 2022.

Street expects GOOGL’s revenue and EPS for the third quarter (ending September 2023) to increase 9.4% and 34.9% year-over-year to $75.59 billion and $1.43, respectively.

The stock has gained 50.3% over the past six months and 53.9% year-to-date to close the last trading session at $135.77.

It’s no surprise that GOOGL has an overall rating of B, which equates to Buy in our proprietary rating system. It has a B grade for Sentiment and Quality. Out of 60 stocks in the same industry, it is ranked #6.

In addition to the POWR Ratings we’ve stated above, we also have GOOGL’s ratings for Growth, Value, Momentum, and Stability. Get all GOOGL ratings here.

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GOOGL shares were trading at $133.98 per share on Wednesday afternoon, down $1.79 (-1.32%). Year-to-date, GOOGL has gained 51.85%, versus a 17.22% rise in the benchmark S&P 500 index during the same period.

Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.

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