Consumer internet businesses are redefining how people engage with the world by giving them instant connectivity and convenience. Luckily for them, the market seems to believe there is a long runway for growth as the industry has recorded a 8.3% gain over the past six months, beating the S&P 500 by 3 percentage points.
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. On that note, here are two resilient internet stocks at the top of our wish list and one we’re swiping left on.
One Consumer InternetStock to Sell:
Nextdoor (KIND)
Market Cap: $623.6 million
Helping residents figure out what's happening on their block in real time, Nextdoor (NYSE: KIND) is a social network that connects neighbors with each other and with local businesses.
Why Are We Hesitant About KIND?
- Focus on expanding its platform has led to weaker growth in its average revenue per user
- Poor expense management has led to EBITDA margin losses
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
At $1.63 per share, Nextdoor trades at 3x forward price-to-gross profit. Read our free research report to see why you should think twice about including KIND in your portfolio.
Two Consumer Internet Stocks to Watch:
Sea (SE)
Market Cap: $89.46 billion
Founded in 2009 and a publicly traded company since 2017, Sea (NYSE: SE) started as a gaming platform and has since expanded to offer a variety of services such as e-commerce, digital payments, and financial services across Southeast Asia.
Why Will SE Beat the Market?
- Paying Users have grown by 10.2% annually, allowing for more profitable cross-selling opportunities if it can build complementary products and features
- Strong engagement trends coupled with 11.7% annual growth in its average revenue per user demonstrate its platform’s stickiness with die-hard customers
- Free cash flow margin increased by 27.3 percentage points over the last few years, giving the company more capital to invest or return to shareholders
Sea’s stock price of $150.55 implies a valuation ratio of 40x forward EV/EBITDA. Is now the right time to buy? Find out in our full research report, it’s free.
Coupang (CPNG)
Market Cap: $54.47 billion
Founded in 2010 by Harvard Business School student Bom Kim, Coupang (NYSE: CPNG) is an e-commerce giant often referred to as the "Amazon of South Korea".
Why Do We Like CPNG?
- Active Customers have increased by an average of 11.9% annually, giving it the potential for margin-accretive growth if it can develop valuable complementary products and features
- Performance over the past three years shows its incremental sales were extremely profitable, as its annual earnings per share growth of 32.7% outpaced its revenue gains
- Free cash flow margin jumped by 8.7 percentage points over the last few years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
Coupang is trading at $30.08 per share, or 31x forward EV/EBITDA. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.
Stocks We Like Even More
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