The internet has transformed from static web pages to an interactive, social, and mobile platform, embracing immersive experiences to foster heightened connections and user engagement. The evolution reflects changing preferences, positioning the internet sector for sustained success and increased vitality in the long term.
Riding this wave of growth momentum, internet stocks Amazon.com, Inc. (AMZN), LegalZoom.com, Inc. (LZ), and Yelp Inc. (YELP) could be ideal additions to your portfolio this month. Before exploring the highlighted stocks, let's examine the dynamics of the internet sector in detail.
The pervasive reach of the internet is evident as two-thirds of the global population is expected to be online by mid-2024. Augmented Reality (AR) and Virtual Reality (VR) are reshaping online experiences, transcending traditional web environments, and fostering dynamic interactions in this transformative era.
The emergence of generative AI is also set to revolutionize the internet sector, offering enhanced user experiences through automated environment and asset generation. By 2026, Gartner (IT) predicts that 70% of new web and mobile app design and development processes will be redefined by generative AI technologies.
Moreover, factors such as the increasing affordability of smartphones and mobile data, alongside the growing popularity of online services, streaming, and social media, are driving the expansion of the industry. With projections indicating a rise to 5.17 billion social media users by 2024's end, the trend of online engagement continues to flourish.
Furthermore, with the proliferation of internet services and the growing client base on the web, e-commerce platforms are also expected to reap benefits. The e-commerce market is expected to be worth $8.80 trillion in 2024. The market is projected to reach $18.81 trillion by 2029, growing at a CAGR of 15.80% between 2024 and 2029.
In light of these encouraging trends, let’s look at the fundamentals of the three best Internet stocks, beginning with number 3.
Stock #3: Amazon.com, Inc. (AMZN)
AMZN participates in the retail sale of consumer products, advertising, and subscription services via online platforms and brick-and-mortar establishments. Moreover, the company provides Amazon Prime with a comprehensive membership program. Its segments include North America; International; and Amazon Web Services (AWS).
On February 9, 2024, Owkin, a TechBio merging human and artificial intelligence for precise patient treatments, announced a collaboration with Amazon Web Services (AWS) to revolutionize drug discovery, hasten clinical trials, and advance AI diagnostics. The collaboration would enable AMZN to strengthen its foothold in the healthcare sector, fostering growth through expanded service utilization and technological advancement.
On January 19, 2024, Amazon Web Services (AWS) unveiled intentions to inject ¥2.26 trillion ($15.06 billion) into bolstering its cloud infrastructure across Tokyo and Osaka by 2027, catering to Japan's surging demand for cloud services.
This, coupled with its prior investment of ¥1.51 trillion ($10.07 billion) from 2011 to 2022, projects AWS' total investment in Japan's cloud infrastructure to reach approximately ¥3.77 trillion ($25.13 billion) by 2027, solidifying its foothold in the region and capitalizing on expanding market opportunities.
For the fiscal 2023 fourth quarter that ended December 31, 2023, AMZN’s total net sales increased 13.9% year-over-year to $169.96 billion. Its operating income rose 382.6% from the year-ago value to $13.21 billion. Also, the company’s net income and EPS significantly grew from the prior year’s period to $10.62 billion and $1, respectively.
Analysts expect AMZN’s revenue to increase 11.6% year-over-year to $641.44 billion for the fiscal year ending December 2024. The company’s EPS for the current year is expected to rise 44.6% from the prior year to $4.19. Additionally, the company topped the consensus revenue and EPS estimates in all four trailing quarters.
Shares of AMZN have gained 20% over the past six months and 69.4% over the past year to close the last trading session at $168.64.
AMZN’s solid outlook is reflected in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
AMZN has an A grade for Growth and Sentiment and a B for Momentum and Quality. It is ranked #5 out of 52 stocks within the B-rated Internet industry.
In addition to the POWR Ratings I’ve highlighted, you can see AMZN’s Value and Stability ratings here.
Stock #2: LegalZoom.com, Inc. (LZ)
LZ manages an online platform dedicated to legal and compliance solutions. The company’s array of products and services encompasses business formation, estate planning document creation, intellectual property protection, form completion, and agreement services.
On November 1, 2023, LZ introduced its latest offering: a business license product aimed at facilitating compliance and legal operations for businesses. Leveraging a proprietary nationwide database, the solution ensures a seamless customer experience by aligning small business profiles with pertinent licenses and permits.
With personalized technology, business owners can save time and gain reassurance as they navigate federal, state, county, and local compliance requirements effortlessly. This is expected to bode well for the company’s growth.
On September 28, 2023, LZ unveiled the beta release of Doc Assist, a complimentary document summarization tool blending generative AI capabilities with LZ's legal tech proficiency. The innovation would strengthen LZ's position as a provider of essential solutions for small business operations, fostering client loyalty and attracting new users seeking efficient document management tools.
For the fiscal 2023 third quarter that ended September 30, 2023, LZ’s revenue increased 7.7% year-over-year to $167.27 million. Its adjusted EBITDA grew 99.6% from the year-ago value to $33.74 million. Also, the company’s non-GAAP net income and non-GAAP net income per share rose 187.6% and 200% from the prior year’s period to $23.31 million and $0.12, respectively.
The consensus revenue estimate of $658.47 million for the fiscal year that ended December 2023 indicates a 6.2% year-over-year growth. Likewise, the consensus EPS estimate of $0.39 for the same period reflects a 143% year-over-year increase. Furthermore, the company surpassed the consensus revenue and EPS estimates in all of the four trailing quarters.
Over the past year, the stock has gained 23.3%, closing the last trading session at $10.32.
LZ’s robust fundamentals are apparent in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system.
LZ has an A grade for Growth and a B for Sentiment and Quality. It is ranked #4 out of 52 stocks within the same industry.
Click here to access additional LZ ratings for Value, Momentum, and Stability.
Stock #1: Yelp Inc. (YELP)
YELP connects consumers to local businesses through its platform. It offers both free and paid advertising solutions, such as cost-per-click search advertising and multi-location Ad products. Additionally, it empowers businesses to deliver precise search advertisements to local audiences and enhance their visibility through business listing page products.
On January 30, 2024, YELP unveiled its Winter Product Release, introducing over 20 new features. Highlights include AI-powered business summaries for quick decision-making, Recognitions for passionate reviewers, and service updates simplifying connecting with the right professionals.
These enhancements are expected to elevate user experience and reinforce YELP's status as a top local business platform.
For the fiscal 2023 third quarter that ended September 30, 2023, YELP’s net revenue increased 11.7% year-over-year to $345.12 million. Its adjusted EBITDA rose 30.5% from the year-ago value to $96.47 million. Moreover, net income and net income per share attributable to common stockholders grew 539.2% and 507.7% from the prior year’s period to $58.22 million and $0.79, respectively.
Analysts expect YELP’s revenue to increase 11.9% year-over-year to $1.34 billion for the fiscal year that ended December 2023. The company’s EPS for the same period is expected to rise 183.6% from the prior year to $3.45. Additionally, the company topped the consensus revenue and EPS estimates in each of the trailing four quarters.
YELP’s shares have gained 36.3% over the past year, closing the last trading session at $43.29.
YELP’s strong prospects are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
YELP has an A grade for Quality and a B for Value. It has topped the 52-stock Internet industry.
Click here to access the additional YELP ratings (Growth, Momentum, Stability, and Sentiment).
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
AMZN shares were trading at $169.50 per share on Wednesday afternoon, up $0.86 (+0.51%). Year-to-date, AMZN has gained 11.56%, versus a 4.11% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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