The internet's demand arises from its pivotal role in digitizing sectors, enhancing digital services, and improving global user experiences. High-speed internet connectivity has revolutionized e-commerce globally, transformed education with online learning, enabled remote work through virtual collaboration, and reshaped media consumption, positioning the internet industry for solid long-term growth.
Given this backdrop, investors could consider buying fundamentally strong internet stocks ATRenew Inc. (RERE), Chegg, Inc. (CHGG), and 1-800-FLOWERS.COM, Inc. (FLWS), given their solid growth prospects.
As of 2023, global internet users reached 5.4 billion, up from 5.3 billion, constituting 67% of the world's population. Enhanced computer access, innovations in virtual reality (VR) and augmented reality (AR), and increased smartphone use have boosted internet usage, benefiting the industry. The global internet services market is projected to grow at a 4.4% CAGR, reaching $733.79 billion by 2031
The advent of 5G, with faster speeds and network density, fuels innovation and economic growth and improves user experiences, benefiting e-commerce and EdTech platforms. The global 5G services market is projected to grow at a 59.4% CAGR from 2023 to 2030, reaching $2.21 trillion by 2030.
Furthermore, Investors’ interest in Internet stocks is evident from the Invesco NASDAQ Internet ETF’s (PNQI) 37.5% returns over the past year.
Considering these conducive trends, let’s examine the fundamentals of the three Internet stock picks mentioned above, beginning with the third choice.
Stock #3: ATRenew Inc. (RERE)
Headquartered in Shanghai, the People's Republic of China, RERE and its subsidiaries operate a pre-owned consumer electronics transactions and services platform in the People's Republic of China.
RERE’s revenue grew at a CAGR of 38.7% over the past three years. Likewise, its Total Assets grew at a CAGR of 1.7% over the past three years.
In terms of forward EV/Sales, RERE’s 0.03x is 97.6% lower than the 1.16x industry average. Its 1.58x forward EV/EBITDA is 82.8% lower than the 9.16x industry average. Likewise, its 1.07x forward EV/EBIT is 91.9% lower than the 13.16x industry average.
For the fiscal fourth quarter that ended December 31, 2023, RERE’s net product revenues and net service revenues increased 31% and 19.7% year-over-year to RMB2.69 billion ($371.53 million) and RMB293.26 million ($40.50 million), respectively. Its adjusted income from operations came in at RMB81.58 million ($11.27 million).
For the same quarter, the company’s adjusted net income grew 305.2% over the prior-year quarter to RMB91.02 million ($12.57 million). In addition, its adjusted net income per ordinary share stood at RMB0.57, up 338.5% year-over-year.
Street expects RERE’s EPS and revenue for the quarter ended March 31, 2024, to increase 75.7% and 25.8% year-over-year to $0.07 and $512.07 million, respectively. Over the past three months, the stock has gained 22.8% to close the last trading session at $1.56.
RERE’s POWR Ratings reflect its strong fundamentals. It has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Growth, Value, and Sentiment. Within the B-rated Internet industry, it is ranked #19 out of 54 stocks. To see RERE’s ratings for Momentum, Stability, and Quality, click here.
Stock #2: Chegg, Inc. (CHGG)
CHGG operates a direct-to-student learning platform that helps learners build essential life and job skills to accelerate their path from learning programs internationally. Its subscription services include Chegg Study, Tinger Gold, DashPash Student services, Chegg Writing, Chegg Math, Chegg Study Pack, and Busuu.
CHGG’s levered FCF grew at a CAGR of 16.6% over the past three years. Also, its revenue grew at a CAGR of 17.4% during the same period.
In terms of forward non-GAAP P/E, CHGG’s 6.25x is 57.9% lower than the 14.85x industry average. Likewise, its 0.25x forward non-GAAP PEG is 82.6% lower than the 1.44x industry average. Furthermore, its 5.27x forward EV/EBITDA is 42.5% lower than the 9.16x industry average.
CHGG’s net revenues for the fiscal fourth quarter that ended December 31, 2023, amounted to $187.99 million. The company’s non-GAAP gross profit stood at $145.87 million. Its non-GAAP net income and net income per share came in at $42.66 million and $0.36, respectively.
Moreover, as of December 31, 2023, the company’s total liabilities stood at $782.62 million, compared to $1.35 billion as of December 31, 2022.
For the quarter ending September 30, 2024, CHGG’s EPS is expected to increase 9.3% year-over-year to $0.20. Its revenue for fiscal 2025 is expected to increase 1.5% year-over-year to $695.82 million. Over the past month, CHGG’s stock has declined 10.2% to close the last trading session at $7.03.
CHGG’s bright prospects are reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It has an A grade for Value and a B for Growth and Quality. It is ranked #11 in the same industry. To access the additional grades of CHGG for Momentum, Stability, and Sentiment, click here.
Stock #1: 1-800-FLOWERS.COM, Inc. (FLWS)
FLWS provides gifts for various occasions internationally. It operates through three segments: Consumer Floral & Gifts, Gourmet Foods & Gift Baskets, and BloomNet.
On January 25, 2024, Cheryl's Cookies, a FLWS brand, announced its strategic expansion into the ice cream market, offering gourmet ice cream flavors inspired by their popular cookie flavors. They also introduced a Cookie & Ice Cream Sandwich Making Kit for customers to enjoy personalized dessert adventures at home.
FLWS’ revenue grew at a CAGR of 9.5% over the past five years. Moreover, its Tang Book Value grew at a CAGR of 15.9% over the past three years.
In terms of forward EV/Sales, FLWS’ 0.30x is 73.8% lower than the 1.16x industry average. Its 6.02x forward EV/EBITDA is 34.3% lower than the 9.16x industry average. Additionally, its 1.21x forward Price/Book is 46.2% lower than the 2.25x industry average.
For the fiscal second quarter that ended December 31, 2023, FLWS reported adjusted net revenues of $822.05 million. The company’s adjusted net income stood at $82.67 million or $1.27 per common share, respectively. Also, as of December 31, 2023, its total assets amounted to $1.19 billion, compared to $1.05 billion as of July 2, 2023.
Analysts expect FLWS’ revenue for the quarter ending September 30, 2024, to increase 1.4% year-over-year to $272.76 million. Its EPS for fiscal 2025 is expected to increase 150.8% year-over-year to $0.40. It surpassed the consensus EPS estimate in each of the trailing four quarters. Over the past six months, the stock has gained 16.2% to close the last trading session at $8.77.
It’s no surprise that FLWS has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has a B grade for Growth, Sentiment, and Quality. It is ranked #10 in the Internet industry. In total, we rate FLWS on eight different levels. Beyond what we have stated above, we also have given FLWS grades for Value, Momentum, and Stability. Get all the FLWS ratings here.
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CHGG shares were trading at $7.23 per share on Friday morning, up $0.20 (+2.84%). Year-to-date, CHGG has declined -36.36%, versus a 5.19% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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