Despite economic uncertainties, the Internet industry thrives thanks to its essential role in modern life, fast-paced digitalization, and smart infrastructure expansion. Moreover, the global adoption of digital technologies and increased internet usage contribute to the industry's success.

In this piece, I have discussed why investing in prominent internet stocks Meta Platforms, Inc. (META) and Yelp Inc. (YELP) could be wise.

Before diving deeper into the fundamentals of these stocks, let’s discuss what’s shaping the internet industry’s growth.

The pandemic accelerated the pace of digitization, increasing internet use for daily needs and services like social media and e-commerce. Online learning and remote work also boosted internet usage. As a vital tool for communication, information, and entertainment, the Internet has created enormous opportunities for Internet service providers.

According to Statista, internet users worldwide stood at 5.18 billion, about two-thirds of the global population. The United States, a major online market, has over 90% internet access among Americans and is home to leading internet companies.

The global digital education market is anticipated to reach $19.8 billion in 2023, increasing from $15.1 billion in 2022. By 2033, it is expected to soar to $240 billion, growing at a CAGR of 28.3%. Continuous internet access and a growing demand for internet-based services should drive this growth.

In addition, the United States is projected to see a 3.9 percentage point increase in the population share with internet access between 2024 and 2028, reaching a peak of 97.6% in 2028.

Simultaneously, the introduction of 5G technology is poised to revolutionize various industries, notably agriculture and healthcare. This advancement is expected to contribute $1.50 trillion to the U.S. economy by 2025. California is anticipated to gain the most, with a $253 billion boost and 2.39 million jobs, while New York and Texas will also experience significant benefits.

Considering these conducive trends, let’s take a look at the fundamentals of the two Internet stock picks, starting with number two.

Stock #2: Meta Platforms, Inc. (META)

META develops products that enable people to connect and share with friends and family through mobile devices, personal computers, virtual reality headsets, and wearables worldwide. It operates in two segments: Family of Apps and Reality Labs.

In terms of the trailing-12-month EBIT margin, META’s 34.41% is 325.9% higher than the 8.08% industry average. Its 23.42% trailing-12-month net income margin is 604.8% higher than the 3.32% industry average. Likewise, the stock’s 22.56% trailing-12-month Capex/Sales is 480.4% higher than the 3.89% industry average.

META’s total revenue for the third quarter ended September 30, 2023, increased 23.2% year-over-year to $34.15 billion. Its income from operations rose 142.7% year-over-year to $13.75 billion. The company’s net income and EPS increased 163.5% and 167.7% year-over-year to $11.58 billion and $4.39, respectively.

Street expects META’s EPS and revenue for the quarter ending December 31, 2023, to increase 178.8% and 21.1% year-over-year to $4.91 and $38.95 billion, respectively. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 203.4% to close the last trading session at $339.97.

META’s POWR Ratings reflect solid prospects. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

It is ranked #2 out of 58 in the Internet industry. It has an A grade for Quality and a B for Growth and Sentiment. Click here to see META’s Value, Momentum, and Stability ratings.

Stock #1: Yelp Inc. (YELP)

YELP operates a platform that connects consumers with local businesses in the United States and internationally. The company's platform covers various local business categories, including restaurants, shopping, beauty and fitness, health, and other categories, as well as home, local, auto, professional, pets, events, real estate, and financial services.

On April 25, 2023, Yelp introduced new features to facilitate business discovery. These include the Yelp Guaranteed satisfaction guarantee for home services, enhanced AI-powered search capabilities, richer reviews, and an overall improved user experience.

Craig Saldanha, chief product officer at YELP, said, "At Yelp, we’re always innovating on ways for consumers and businesses to connect in more seamless and meaningful ways."

In terms of the trailing-12-month gross profit margin, YELP’s 91.33% is 85.9% higher than the 49.13% industry average. Its 7.05% trailing-12-month net income margin is 112.2% higher than the 3.32% industry average. However, the stock’s 19.78% trailing-12-month levered FCF margin is 153% lower than the 7.82% industry average.

YELP’s net revenue for the third quarter that ended September 30, 2023, increased 11.7% year-over-year to $345.12 million. Its net income attributable to common stockholders and net income per share attributable to common stockholders came in at $58.22 million and $0.79, up 539.2% and 507.7% year-over-year.

Moreover, the company’s adjusted EBITDA rose 30.5% over the prior-year quarter to $96.47 million.

For the quarter ending December 31, 2023, YELP’s EPS and revenue are expected to increase 17.5% and 10.4% year-over-year to $0.81 and $341.21 million, respectively. It surpassed the consensus EPS estimate in four of the trailing four quarters. The stock has gained 69.5% year-to-date to close the last trading session at $46.34.

YELP’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.

It has an A grade for Quality and a B for Value. It is ranked first in the Internet industry. To see YELP’s Growth, Momentum, Stability, and Sentiment ratings, click here.

What To Do Next?

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META shares fell $0.67 (-0.20%) in premarket trading Tuesday. Year-to-date, META has gained 182.51%, versus a 20.10% rise in the benchmark S&P 500 index during the same period.

Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.

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