The internet has become an integral part of modern life, influencing how people communicate, shop, and work. The widespread adoption of digital technologies and internet usage globally offers companies operating within this space a substantial market to scale their user base and revenue.

In light of this, investors could keep a close eye on three highly renowned stocks, Amazon.com, Inc. (AMZN), Netflix, Inc. (NFLX), and Pinterest, Inc. (PINS). Before examining the fundamentals of these stocks, let’s look at the factors fueling the soaring demand in the sector.

The global pandemic catalyzed the internet sector. With lockdowns and social distancing measures in place, people turned to the internet for work, entertainment, and shopping. This sudden and widespread shift to online activities has skyrocketed the adoption of digital technologies and boosted the demand for internet services and products.

For instance, in 2022, the global e-commerce market attained a substantial size of $16.60 trillion. Looking ahead, analysts project the market to achieve an impressive $70.90 trillion by 2028, showcasing a remarkable CAGR of 27.4% during the period from 2022 to 2028.

Moreover, owing to increased internet accessibility, the global Over The Top (OTT) market is expected to witness substantial growth, reaching a market size of $490.13 billion by 2028, which is a significant increase from $210.13 billion in 2022. The overall market is expected to achieve a promising CAGR of 15.7% during the forecast period from 2023 to 2028.

Further, the progress in telecommunication networks and infrastructure has significantly influenced internet penetration worldwide. By April 2023, there were 5.18 billion internet users worldwide, while the average global internet penetration rate as of July 2023 was around 64.6%.

In addition, the global 5G connections are expected to hit 1.90 billion by the end of this year. The forecast indicates an extraordinary trajectory, with global 5G connections projected to reach a staggering 6.80 billion by the end of 2027. This translates to an average annual growth of nearly one billion new connections, underscoring the immense scale and impact of 5G technology.

With such robust projections and statistics, the future of the internet industry looks bright. That being said, let us now look at the fundamentals of the featured stocks in detail:

Amazon.com, Inc. (AMZN)

E-commerce behemoth AMZN engages in the sale of consumer products and subscriptions through online and physical stores in North America and worldwide. It operates through three segments: North America; International; and Amazon Web Services (AWS).

On June 22, AWS, an AMZN company, introduced AWS Generative AI Innovation Center, a $100 million program to help customers build and deploy generative Artificial Intelligence (AI) solutions. It connects AWS AI and Machine Learning (ML) experts with customers globally to envision, design, and launch new generative AI products, services, and processes.

This investment builds on AWS' long-standing commitment to AI technologies for customers and is part of their strategy to bring generative AI to a broader audience.

On March 21, AWS and NVIDIA Corporation (NVDA) jointly announced a comprehensive collaboration aimed at creating a highly scalable and on-demand AI infrastructure. This infrastructure is specifically optimized for training sophisticated Large Language Models (LLMs) and developing generative AI applications.

AMZN’s trailing-12-month gross profit margin of 44.73% is 26.7% higher than the 35.3% industry average. Its trailing-12-month CAPEX/Sales of 11.98% is 268.4% higher than the 3.25% industry average. Also, the stock’s trailing-12-month cash per share of $4.81 is 99.1% higher than the industry average of $2.42.

For the fiscal second quarter, which ended on June 31, 2023, AMZN’s total net sales increased 10.8% year-over-year to $134.38 billion, while its operating income rose 131.7% from the year-ago value to $7.68 billion.

During the same period, the company’s net income and EPS amounted to $6.75 billion and $0.65 versus a net loss and loss per share of $2.03 billion and $0.20 in the same period last year, respectively. Also, its comprehensive income came in at $7.04 billion.

Analysts expect AMZN’s revenue and EPS for the third quarter (ending September 30, 2023) to increase 8.80% and 43.4% year-over-year to $138.29 billion and $0.40, respectively. Moreover, it surpassed the EPS and revenue estimates in three of the trailing four quarters, which is promising.

Over the past three years, its revenue and EBITDA have grown at CAGRs of 21% and 16.4%, respectively. Likewise, its total assets improved at a CAGR of 28% over the same period.

The stock has gained 53.5% year-to-date to close the last trading session at $128.91.

AMZN’s POWR Ratings reflect this promising outlook. It has a B grade for Growth, Sentiment, and Quality. In the 58-stock Internet industry, it is ranked #14. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

Click here to see AMZN’s ratings for Value, Momentum, and Stability.  

Netflix, Inc. (NFLX)

NFLX provides entertainment services, such as TV series, documentaries, feature films, and mobile games across various genres and languages. The company allows its members to access streaming content through a variety of internet-connected devices, such as TVs, digital video players, and mobile devices.

NFLX’s trailing-12-month levered FCF margin of 55.60% is 647.7% higher than the 7.44% industry average. Its trailing-12-month net income margin of 13.22% is 304.2% higher than the 3.27% industry average. Also, the stock’s trailing-12-month EBIT margin of 17.51% is 102.6% higher than the industry average of 8.64%.

In the second quarter, which ended June 30, 2023, NFLX’s revenues increased 2.7% year-over-year to $8.19 billion, while its operating income rose 15.8% from the year-ago value to $1.83 billion.

The company’s net income and EPS came in at $1.49 billion and $3.29, up 3.2% and 2.8% from the prior-year quarter, respectively. Also, its total current assets amounted to $11.51 billion, increasing 24.2% compared to $9.27 billion as of December 31, 2022.

Street expects NFLX’s revenue and EPS for the third quarter (ending September 30, 2023) to increase 7.7% and 12.6% year-over-year to $8.54 billion and $3.49, respectively. The company has an impressive earnings surprise history, surpassing the EPS estimates in three of the trailing four quarters.

Additionally, NFLX’s revenue and EBITDA have grown at CAGRs of 12.4% and 15.7% over the past three years, respectively. Likewise, its net income and levered FCF have increased at CAGRs of 16.6% and 16.7% over the same period, respectively.

Over the past year, the stock has gained 90.1% to close the last trading session at $431.

NFLX’s strong fundamentals are reflected in its POWR Ratings. It has a B grade for Sentiment and Quality.

Within the same industry, it is ranked #16. Click here to see NFLX’s ratings for Growth, Value, Momentum, and Stability.

Pinterest, Inc. (PINS)

PINS operates as a visual discovery engine in the United States and internationally. The company's engine allows people to find ideas, such as recipes, home and style inspiration, and others.

In terms of trailing-12-month gross profit and levered FCF margins, PINS’ 75.48% and 14.32% are 52.1% and 92.6% higher than its industry averages of 49.59% and 7.44%, respectively. In addition, its trailing-12-month asset turnover ratio of 0.83x is 68.9% higher than its industry average of 0.49x.

PINS’ revenue for the second quarter (ended June 30, 2023) increased 6.3% year-over-year to $708.03 million, while its adjusted EBITDA improved by 16.3% from the year-ago value to $107.02 million. The company’s non-GAAP net income amounted to $142.09 million and $0.21 per share, up 83.7% and 90.9% from the prior-year quarter, respectively.

The consensus EPS estimate of $0.20 for the third quarter (ending September 30, 2023) represents an 81.4% improvement year-over-year. The consensus revenue estimate of $741.53 million for the current quarter reflects an 8.3% increase from the same period last year.

Additionally, the company surpassed the EPS estimates in each of the trailing four quarters and revenue estimates in three of the trailing four quarters, which is excellent.  

PINS’ revenue increased at a CAGR of 32.9% and 42.8% over the past three and five years, respectively. While levered FCF has grown at a CAGR of 41.1% over the past three years.

PINS’ shares have gained 21% over the past year and 29.9% over the past three months to close the last trading session at $27.16.

It’s no surprise that PINS has an A grade for Quality and a B for Sentiment. Out of 58 stocks in the same industry, it is ranked #12.

In addition to the POWR Ratings we’ve stated above, we also have PINS ratings for Growth, Value, Momentum, and Stability. Get all PINS ratings here.

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AMZN shares were trading at $142.63 per share on Friday afternoon, up $13.72 (+10.64%). Year-to-date, AMZN has gained 69.80%, versus a 19.21% rise in the benchmark S&P 500 index during the same period.

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