With growing adoption and growing Internet of Things (IoT) market worldwide, the Internet industry is well positioned to rise. Given its solid financial position and growth potential, it may be wise to invest in Shutterstock (SSTK) in the Internet space. However, Shopify (SHOP) and DoorDash (DASH) are now best avoided due to their weak fundamentals. Read more….
The internet is undeniably one of the most important innovations, as it enables a wide exchange of information and ideas and connects people worldwide. The Internet industry gained tremendous traction during the pandemic as conditions forced businesses to operate remotely.
According to Data Report, a total of 5.16 billion people around the world will be using the internet by early 2023, representing 64.4% of the total world population. In addition, current trends indicate that two-thirds of the world’s population should be online by the end of this year.
Furthermore, the Internet of Things (IoT) is believed to be the next wave as it builds intelligent communication environments and leads to real-time analytics, more efficient operations and predictive capabilities. The global IoT market size is expected to reach $650.50 billion by 2026, growing at a CAGR of 16.7%.
The increasing adoption of smartphones and other advanced gadgets, increasing investment in cloud-based services and emerging 5G technology to drive the adoption of the Internet of Things are driving the growth of the Internet industry.
However, the tech sector suffered a carnage last year, with several stocks taking heavy losses. Record high inflation forced the Fed to become ultra-aggressive with tight monetary policy. The tech-heavy Nasdaq Composite index is down 15.2% over the past year.
With daily innovations, some internet stocks are well positioned to rise, while others may struggle to stay afloat amid the macroeconomic headwinds.
Against this background, investors should invest in fundamentally sound Shutterstock, Inc. (SSTK) hand over fist at this point. At the same time, due to weak fundamentals and bleak growth prospects, Shopify Inc. (STORE) and DoorDash, Inc. (DASH) is best avoided.
Stock to buy:
Shutterstock, Inc. (SSTK)
SSTK is a technology company that delivers high-quality content and creative workflow solutions internationally. It provides image services consisting of photos, vectors and illustrations used in visual communication. SSTK provides services under the Shutterstock, Bigstock, Offset, TurboSquid and PremiumBeat brands.
On January 31, 2023, the company announced a dividend of $0.27 per common share outstanding, an increase of 13% from the prior quarter. This dividend is payable on March 16, 2023. SSTK’s four-year average dividend yield is 1.69% and the expected annual dividend of $1.08 translates to a yield of 1.41% at current price levels.
On January 25, SSTK launched generative AI on its all-in-one creative platform. The text-to-image technology converts prompts into larger-than-life, ethically produced, licensing-ready images.
Chief Executive Officer at SSTK, Paul Hennessy, said: “Shutterstock has developed strategic partnerships with key industry players such as OpenAI, Meta and LG AI Research over the past two years to drive their generative AI research efforts, and we are now able to to uniquely bring responsibly sourced generative AI capabilities to our own customers.”
SSTK’s revenue increased 5% year over year to $204.09 million in the third quarter ended September 30, 2022. The adjusted net income was $36.17 million, up 37.2% year-over-year, while adjusted earnings per share came in at $1, up 42.9% year-over-year. Also, adjusted EBITDA grew 26.2% over the same quarter last year to $56.03 million.
Analysts expect SSTK’s EPS to rise 25.1% year over year to $0.96 for the quarter ended December 31, 2022. It beat consensus EPS estimates in three of the next four quarters. Revenue is expected to be $202.43 million in the first quarter (ending March 31, 2023), up 1.7% year-over-year.
Shares of SSTK are up 69.1% over the past three months to close out the last trading session at $77.63.
SSTKs POWR ratings reflect this promising outlook. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings rate stocks on 118 different factors, each with its own weighting.
It has a B grade for quality. SSTK is number 3 out of 29 stocks within the Internet services industry. To see SSTK’s ratings for growth, value, momentum, stability and sentiment, click here.
Stocks to avoid:
Shopify Inc. (STORE)
Headquartered in Ottawa, Canada, SHOP is a cloud-based, multi-channel commerce platform that provides subscription and merchant solutions to small and medium-sized businesses. The platform enables merchants to display, manage, market and sell their products through various sales channels.
In the fiscal third quarter (ending September 30, 2022), SHOP operating expenses increased 64.4% year over year to $1.01 billion. Operating loss increased significantly from last year’s quarter to $345.37 million.
The company’s net loss and loss per share attributable to common stockholders were $158.41 million and $0.12, compared to net income and earnings per share of $1.15 billion and $0.90, respectively, in the same period. period last year.
In terms of forward EV/Sales and Price/Sales, SHOP is trading at 11.55x and 12.21x, 281.6% and 296.8% higher than the industry averages of 3.03x and 3.08x respectively. The long-term price/book multiple of 7.85 is also comparable to the industry average of 4.26.
Analysts expect SHOP’s earnings per share for fiscal year 2022 to remain negative. The stock is down 41.1% over the past year to close out the last trading session at $51.57.
SHOP’s POWR ratings reflect this bleak outlook. The stock has an overall rating of D, which translates to selling in our proprietary rating system.
It has a D rating for value, stability and quality. It ranks number 27 out of 29 stocks in the same industry. click here to see SHOP’s additional ratings (Growth, Momentum, and Sentiment).
DoorDash, Inc. (DASH)
DASH is in the business of providing a local logistics platform that connects merchants, consumers and dashers. The business includes DoorDash Marketplace, DoorDash Drive, and DoorDash Storefront.
In the third quarter ended September 30, 2022, DASH’s total costs and expenses increased 46.1% year-over-year to $2.01 billion. Operating loss and attributable net loss increased year over year by 208% and 192.1% to $308 million and $295 million, respectively. The company’s loss per share was $0.77, up 156.7% year-over-year.
In terms of forward non-GAAP P/E, DASH trades at 621.41x, significantly above the industry average of 15.06x. The forward EV/EBITDA multiple of 54.77 is 439.6% higher than the industry average of 10.15. Also, the price/cash flow multiple of 47.81 is comparable to the industry average of 11.74.
The consensus earnings-per-share estimate of $0.10 for fiscal year 2022 (ending December 31, 2022) represents a 72.7% decline from the same period last year. Over the past year, the stock lost 39.4% to close the last day of trading at $59.68.
DASH’s weak fundamentals are reflected in the POWR ratings. It has an overall rating of D, which equates to Selling in our proprietary rating system.
It has a D rating for growth, stability and sentiment. Within the same industry, it is number 26. click here to see other ratings of DASH for Value, Momentum, and Quality.
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SSTK shares were unchanged during premarket trading on Tuesday. Year-to-date, SSTK has gained 47.25%, versus a 7.16% gain in the benchmark S&P 500 index over the same period.
About the author: Shweta Kumari
Shweta’s keen interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make informed investment decisions.
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