Whether it be online shopping or social media, secular forces are propelling consumer internet businesses forward. The new habits they’re cultivating are also unlocking the next leg of growth for the industry, which has gained 31.6% over the past six months compared to 22.9% 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. Taking that into account, here are three internet stocks best left ignored.
Shutterstock (SSTK)
Market Cap: $897.9 million
Originally featuring a library that included many of founder Jon Oringer’s photos, Shutterstock (NYSE: SSTK) is now a digital platform where customers can license and use hundreds of millions of pieces of content.
Why Are We Wary of SSTK?
- Decision to emphasize platform growth over monetization has contributed to 5.4% annual declines in its average revenue per request
- Estimated sales growth of 1.6% for the next 12 months implies demand will slow from its three-year trend
- Capital intensity has ramped up over the last few years as its free cash flow margin decreased by 16.5 percentage points
Shutterstock’s stock price of $25.48 implies a valuation ratio of 3.4x forward EV/EBITDA. Read our free research report to see why you should think twice about including SSTK in your portfolio.
Cars.com (CARS)
Market Cap: $675.9 million
Originally started as a joint venture between several media companies including The Washington Post and The New York Times, Cars.com (NYSE: CARS) is a digital marketplace that connects new and used car buyers and sellers.
Why Does CARS Worry Us?
- Dealer Customers have stagnated over the last two years, indicating its platform may be struggling to differentiate itself from competitors
- Estimated sales growth of 2% for the next 12 months implies demand will slow from its three-year trend
- Falling earnings per share over the last three years has some investors worried as stock prices ultimately follow EPS over the long term
Cars.com is trading at $11.06 per share, or 3.2x forward EV/EBITDA. Check out our free in-depth research report to learn more about why CARS doesn’t pass our bar.
eHealth (EHTH)
Market Cap: $155.5 million
Aiming to address a high-stakes and often confusing decision, eHealth (NASDAQ: EHTH) guides consumers through health insurance enrollment and related topics.
Why Is EHTH Not Exciting?
- Value proposition isn’t resonating strongly as its estimated membership averaged 2.2% drops over the last two years
- Forecasted revenue decline of 2.5% for the upcoming 12 months implies demand will fall off a cliff
- Negative free cash flow raises questions about the return timeline for its investments
At $4.99 per share, eHealth trades at 3.9x forward EV/EBITDA. If you’re considering EHTH for your portfolio, see our FREE research report to learn more.
Stocks We Like More
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