Consumer internet businesses are redefining how people engage with the world by giving them instant connectivity and convenience. These themes have enabled rapid growth for the industry, which has posted a 36.5% gain over the past six months compared to 17.5% for the S&P 500.
However, long-term winners that can stand the test of time are rare in this space because competition is fierce with many well-capitalized companies. Keeping that in mind, here are three internet stocks we’re steering clear of.
Wayfair (W)
Market Cap: $11.2 billion
Founded in 2002 by Niraj Shah, Wayfair (NYSE: W) is a leading online retailer of mass-market home goods in the US, UK, Canada, and Germany.
Why Should You Sell W?
- Intense competition is diverting traffic from its platform as its active customers fell by 1.7% annually
- Demand has been weak recently as it posted disappointing growth in its average revenue per buyer and struggled to expand its platform
- Gross margin of 30.3% reflects its high servicing costs
Wayfair is trading at $87.72 per share, or 21.2x forward EV/EBITDA. To fully understand why you should be careful with W, check out our full research report (it’s free).
Revolve (RVLV)
Market Cap: $1.70 billion
Launched in 2003 by software engineers Michael Mente and Mike Karanikolas, Revolve (NASDAQ: RVLV) is a fashion retailer leveraging social media and a community of fashion influencers to drive its merchandising strategy.
Why Are We Out on RVLV?
- Competition may be pulling attention away from its platform as its 6.5% average growth in active customers was choppy
- Concerning trends in both user engagement and monetization suggest its platform’s efficacy is declining as its average revenue per buyer fell by 1.5% annually
- Falling earnings per share over the last three years has some investors worried as stock prices ultimately follow EPS over the long term
At $24.30 per share, Revolve trades at 32.7x forward EV/EBITDA. Read our free research report to see why you should think twice about including RVLV in your portfolio.
Udemy (UDMY)
Market Cap: $1.08 billion
With courses ranging from investing to cooking to computer programming, Udemy (NASDAQ: UDMY) is an online learning platform that connects learners with expert instructors who specialize in a wide range of topics.
Why Is UDMY Not Exciting?
- Focus on expanding its platform came at the expense of monetization as its average revenue per buyer fell by 1.3% annually
- Projected sales are flat for the next 12 months, implying demand will slow from its three-year trend
- Excessive marketing spend signals little organic demand and traction for its platform
Udemy’s stock price of $7.35 implies a valuation ratio of 11.5x forward EV/EBITDA. If you’re considering UDMY for your portfolio, see our FREE research report to learn more.
Stocks We Like More
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