The Zacks Internet - Content industry is benefiting from solid demand for digital offerings, as well as the increasing importance of video content and cloud-based applications. The proliferation of AI and rapid deployment of generative AI are aiding industry players. Participants like Yelp YELP, Weibo WB and Angi ANGI are expanding their presence across social media, display and connected TV, and search, driving top-line growth. However, the industry has been suffering from challenging macroeconomic conditions globally. Persistent inflation and higher interest rates are having a detrimental effect on ad spending, the primary revenue source for the industry participants. The ongoing war between Russia and Ukraine, as well as in the Middle East, has been an overhang on the prospects of the industry participants.
Industry Description
The Zacks Internet - Content industry comprises providers of video encoding platforms, personal services, Internet content and information, staffing and outsourcing services, publishing, capital markets, media-based, home service, digital insights and measurement, stock photo, video and music licensing, and online travel companies. The industry is witnessing a rapid change in consumer behavior and ongoing digitalization. Advertising is a major revenue source for industry participants. Therefore, these companies are trying to expand their digital presence to win customers. They are also expanding their presence across social media, display and connected TV and search. Apart from the United States, a number of companies in this industry are located in Israel, the U.K., Germany, Russia and China.
3 Trends Shaping the Future of the Internet - Content Industry
Demand for Digital Offerings Growing: The industry is characterized by rapid technological change, frequent product and service introductions, and evolving standards. An expanding range of mobile, digital and cloud-based offerings by industry participants is a major growth driver. The proliferation of smart devices and increasing automation of the application development process bodes well.
Industry Prospects Driven by Ad Spending Rate: Industry participants are focusing on marketing efforts to boost traffic to websites. Advertising and subscriptions are major revenue sources for these companies. Also, the industry is dependent on consumer spending trends, making holiday spending a major deciding factor. However, macroeconomic challenges, persistent inflation and higher interest rates are expected to hurt ad spending in the near term.
Increasing Regulations Mar Prospects: Industry participants involved in online search and other social networking activities are increasingly facing regulatory pressure, particularly in China and the European Union (“EU”). The China government has a number of regulations related to direct advertising, which is a prime revenue source for these companies. The implementation of the General Data Protection Regulation, which took effect on May 25, 2018, in the EU, adds to the concerns. Enactment of the Digital Markets Act (DMA) in the EU aims to prevent large online platforms, which connect users with content, goods, information and services, from abusing their market power. The DMA further adds to the headwind already faced by Internet content providers in the EU.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Internet - Content industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #59, which places it in the top 24% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
The industry’s position in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are optimistic about this group’s earnings growth potential. Since April 30, 2024, the Zacks Consensus Estimate for the industry’s 2024 earnings has moved up by 4.4%.
Given the bright industry outlook, there are a number of stocks worth buying currently. But before we present those stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock market performance and valuation.
Industry Underperforms S&P and Sector
The Zacks Internet - Content industry has underperformed the broader Zacks Computer and Technology sector, as well as the S&P 500 composite over the past year.
The industry has returned 21.6% over this period compared with the 33.4% growth of the S&P 500 and the 38.4% increase of the broader sector.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month price-to-sales ratio (P/S), which is a commonly used multiple for valuing Internet - Content stocks, we see that the industry is currently trading at 9.10X compared with the S&P 500’s 5.77X and the sector’s 7.72X.
Over the last five years, the industry has traded as high as 9.16X and as low as 7.24X, with the median being 8.34X, as the charts below show.
Trailing 12-Month Price-to-Sales (P/S) Ratio
3 Internet Stocks to Buy
Angi: This Zacks Rank #1 (Strong Buy) stock is benefiting from an increase in programmatic ad rates. Strong growth in the digital licensing segment revenues is a key catalyst.
The Zacks Consensus Estimate for ANGI’s 2024 earnings has increased by 7 cents to 8 cents per share over the past 30 days.
This Denver, CO-based company shares have lost 21.7% year to date.
Price and Consensus: ANGI
Weibo: This Zacks Rank #1 company is riding on an expanding user base, which reached roughly 587 million in the third quarter of 2024. Enhanced user engagement retention has been noteworthy and is expected to boost prospects.
The Zacks Consensus Estimate for Weibo’s 2024 earnings has increased 3.5% to $1.77 per share over the past 30 days.
WB’s shares have declined 12.6% year to date.
Price and Consensus: WB
Yelp: This San Francisco-based company is benefiting from higher ad spending, an increase in Paying Advertising Locations and an improvement in the non-term customer retention rate. It is witnessing an acceleration in consumer traffic across app-unique devices.
Yelp’s continued investment in AI and machine learning is expected to drive higher engagement and loyalty on its platform, ultimately contributing to sustained revenue growth.
The Zacks Consensus Estimate for this Zacks Rank #2 (Buy) company’s 2024 earnings has increased 7.8% over the past 30 days to $1.80 per share.
YELP shares have lost 17.6% in the year-to-date period.
Price and Consensus: YELP
5 Stocks Set to Double
Each was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2024. While not all picks can be winners, previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
Yelp Inc. (YELP) : Free Stock Analysis Report
Angi Inc. (ANGI) : Free Stock Analysis Report
Weibo Corporation (WB) : Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
