There has been a significant surge in demand for internet services and products lately. People worldwide rely heavily on the internet for entertainment, shopping, work, and communication. The extensive global adoption of digital technologies and internet usage provides companies in this sector with a significant market to expand their user base.

Given the backdrop, in this article, we explore the fundamentals of three internet stocks, Netflix, Inc. (NFLX), Pinterest, Inc. (PINS), and Opera Limited (OPRA), that seem well-equipped to capitalize on the industry tailwinds and could be solid additions to your watchlist.

The widespread availability and affordability of smartphones and other connected devices have fueled mobile internet usage. Mobile devices are becoming the primary means of accessing the internet for many individuals, leading to increased engagement with online services.

At the beginning of the third quarter of 2023, the global internet user count reached a whopping 5.19 billion, accounting for approximately 64.5% of the world's total population. Moreover, the number of internet users has continued to increase steadily, with the latest data showing a growth of over 100 million users in the 12-month period up to July 2023.

Additionally, the implementation of 5G technology promises to deliver faster and more dependable internet connectivity, unlocking new possibilities for innovative applications and services.

By the end of this year, global 5G connections are anticipated to reach 1.90 billion, demonstrating a remarkable trajectory. The forecast indicates an exceptional growth trajectory, with an estimated 6.80 billion global 5G connections expected by the end of 2027. This translates to an average annual growth of approximately one billion new connections, emphasizing the immense scale and impact of 5G technology.

Furthermore, the internet industry has showcased its resilience in times of adversity, evident during the pandemic. Internet-based businesses exhibit the ability to swiftly adapt to changing circumstances, making them more robust and better equipped to navigate uncertain market conditions.

Overall, the internet industry appears to hold great promise, driven by the increase in internet users and the exciting potential of 5G technology. Thus, investors could consider keeping a close watch on NFLX, PINS, and OPRA.

To that end, let us dig deeper into the fundamentals of the aforementioned stocks:

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 various internet-connected devices, such as TVs, digital video players, and mobile devices.

NFLX’s trailing-12-month levered FCF margin of 55.60% is 648.1% higher than the 7.43% industry average. Its trailing-12-month net income margin of 13.22% is 293.4% higher than the 3.36% 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 15.7% over the same period, respectively.

Over the past year, the stock has gained 87.7% to close the last trading session at $431.60.

NFLX’s POWR Ratings reflect this promising outlook. It has a B grade for Sentiment and Quality. In the 58-stock Internet industry, it is ranked #19. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

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.  

Om April 27, PINS selected Amazon as its inaugural partner for third-party ads. This collaboration with Amazon is expected to enrich PINS’ platform with a broader range of brands and relevant products while providing consumers with a seamless buying experience on Amazon.

Commenting on this collaboration with Amazon, Bill Ready, CEO of PINS, said, “This aligns with our goal of making every Pin shoppable, so that we can enable as many users as possible to bring their dreams to life.”

In terms of trailing-12-month gross profit and levered FCF margins, PINS’ 75.48% and 14.32% are 52.9% and 92.7% higher than its industry averages of 49.37% and 7.43%, respectively. In addition, its trailing-12-month asset turnover ratio of 0.83x is 71.2% 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 CAGRs of 32.9% and 42.8% over the past three and five years, respectively. At the same time, levered FCF has grown at a CAGR of 41.1% over the past three years.

PINS’ shares have gained 19.1% over the past nine months and 28.3% over the past three months to close the last trading session at $26.66.

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 #14.

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.

Opera Limited (OPRA)

Headquartered in Oslo, Norway, OPRA provides mobile and PC web browsers. It operates in two segments: Browser and News; and Other. The company offers mobile browser products, such as Opera Mini, Opera for Android and iOS, Opera GX Mobile, Opera Touch, etc.

On July 28, OPRA revealed that its native browser AI called Aria had surpassed one million users after recently being made available on both the Opera Browser for Android and Opera Browser for desktop.

The introduction of Aria in May represented a significant advancement in OPRA's swift adoption of AI services. Aria is built on OPRA's "Composer" infrastructure and leverages OpenAI's GPT technology while benefiting from additional features like real-time web results. This ensures Aria's potential for expansion and enhancement as it continues to evolve.

In the same month, OPRA paid its shareholders a semi-annual dividend of $0.40 per ADS. The company’s annual dividend translates to a 4.52% yield on the prevailing prices, while its four-year average dividend yield is 0.96%.

OPRA’s trailing-12-month net income margin of 11.53% is 468.8% higher than the 2.03% industry average. Its trailing-12-month ROTA of 4.38% is significantly higher than the 0.02% industry average. Also, the stock’s trailing-12-month EBIT margin of 16.42% is 266.6% higher than the industry average of 4.48%.

OPRA’s revenue for the first quarter that ended March 31, 2023, increased 21.6% year-over-year to $87.05 million, while its adjusted EBITDA increased 195.8% year-over-year to $21.74 million.

The company’s net income attributable to owners of the parent and net income per ADS came in at $15.48 million and $0.17, compared to net loss and net loss per ADS of $9.44 million and $0.08, respectively, in the prior-year quarter. Also, its operating profit came in at $13.95 million, up 939.5% from the year-ago value.

Analysts expect OPRA’s revenue and EPS for the third quarter (ending September 30, 2023) to increase 16.4% and 85% year-over-year to $99.35 million and $0.19, respectively. Moreover, the company surpassed the revenue estimates in each of the trailing four quarters, which is promising.

OPRA’s revenue has grown at a 19.4% CAGR over the past five years. Its net income and EPS have grown at 6.9% and 13.4% CAGRs over the past three years, respectively.

The stock has gained 322.6% over the past nine months to close the last trading session at $17.70.

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

Within the same industry, it is ranked #17. Click here to see OPRA’s ratings for Value, Momentum, Stability, and Sentiment.

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NFLX shares were trading at $436.66 per share on Monday afternoon, up $5.06 (+1.17%). Year-to-date, NFLX has gained 48.08%, versus a 18.53% rise in the benchmark S&P 500 index during the same period.

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