Increased online engagement and the rising necessity for swift and effective connectivity have positioned the internet industry for significant growth. Against this backdrop, integrating internet stocks Netflix, Inc. (NFLX) and Meta Platform, Inc. (META) into your portfolio could prove prudent.
Before delving into the fundamentals of the stocks, let’s examine the dynamics of the Internet industry.
The pandemic has dramatically accelerated global digital transformation. Trends like remote work, virtual education, and extensive internet usage for entertainment, communication, and e-commerce highlight the internet's pivotal role in shaping modern lifestyles and emphasize its critical influence on societal dynamics.
Over the past year, internet users have grown by 1.8%, with around 97 million new users using online platforms for the first time. According to a recent report, 331.10 million internet users were found in early 2024, when internet penetration stood at 97.1%.
In January, about 70.1% of the U.S. population were social media users. The social media market is expected to hit $251.45 billion by 2024, further expanding at a 13.2% CAGR by 2028, thanks to increased smartphone adoption, internet penetration, content sharing, social connectivity, short-form video dominance, and visual content adoption.
Moreover, the entertainment-centric video streaming and OTT industry is poised for significant growth this year. Fueled by rising consumer demand for flexible, on-the-go access to diverse real-time content and an expanding video-on-demand user base, the OTT service market is anticipated to reach $247 billion by 2027.
Furthermore, the internet industry's prospects are bolstered by the widespread adoption of 5G technology, offering faster and more reliable connectivity. Consequently, the global internet service market is forecasted to reach $733.79 billion, growing at a 4.4% CAGR by 2031.
Considering these conducive trends, let's take a look at the fundamentals of the two B-rated Internet industry stocks, starting with the second choice.
Stock #2: Netflix, Inc. (NFLX)
NFLX provides entertainment services. It offers TV series, documentaries, feature films, and games across various genres and languages.
On January 23, WWE, part of TKO Group Holdings, Inc., and NFLX announced a long-term partnership that will bring WWE’s flagship weekly program, Raw, to the world’s leading entertainment service. Beginning in January 2025, NFLX will be the exclusive new home of Raw in the U.S., Canada, the U.K., and Latin America, among other territories, with additional countries and regions to be added over time.
Likewise, as part of the agreement, NFLX will also become the home for all WWE shows and specials outside the U.S., including Raw and WWE’s other weekly shows, SmackDown and NXT, as well as the company’s Premium Live Events. WWE’s award-winning documentaries, original series, and forthcoming projects will also be available on NFLX internationally in 2025. This should bode well for NFLX.
NFLX’s trailing-12-month cash from operations of $7.27 billion is significantly higher than the industry average of $309.25 million. Its trailing-12-month net income and levered FCF margins of 16.04% and 57.48% are 464.6% and 622.8% higher than the industry averages of 2.84% and 7.95%, respectively.
For the fiscal fourth quarter that ended December 31, 2023, NFLX’s revenues and operating income stood at $8.83 billion and $1.50 billion, up 12.5% and 172.1% year-over-year, respectively. For the same quarter, its net income and earnings per share increased significantly from the prior-year quarter to $937.84 million and $2.11, respectively.
Street expects NFLX’s revenue and EPS for the fiscal first quarter ending March 2024 to increase 13.6% and 57% year-over-year to $9.27 billion and $4.52, respectively. The company surpassed consensus EPS estimates in three of the trailing four quarters, which is impressive.
The stock has gained 91.1% over the past year to close the last trading session at $627.46. Over the past six months, it has gained 63.1%.
NFLX’s POWR Ratings reflect its positive prospects. The stock has an overall B rating, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has an A grade for Quality and a B for Sentiment. Within the B-rated Internet industry, it is ranked #17 out of 52 stocks.
To see additional POWR Ratings for Growth, Value, Momentum, and Stability for NFLX, click here.
Stock #1: 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.
Recently, META paid stockholders its first cash dividend of $0.50 per share of its outstanding common stock (including both Class A common stock and Class B common stock). The company intends to pay a cash dividend on a quarterly basis in the future.
Its annualized dividend is $2 per share, which translates to a dividend yield of 0.40% on the current share price.
META repurchased $6.32 billion and $20.03 billion of its Class A common stock in the fourth quarter and full year that ended December 31, 2023, respectively. As of December 31, 2023, the company had $30.93 billion available and authorized for repurchases. Additionally, they announced a $50 billion increase in their share repurchase authorization.
META’s trailing-12-month cash from operations of $71.11 billion is significantly higher than the industry average of $309.25 million. Similarly, its trailing-12-month ROTA of 17.03% is significantly higher than the industry average of 1.27%.
For the fiscal fourth quarter that ended December 31, 2023, META’s revenue and income from operations stood at $40.11 billion and $16.38 billion, up 24.7% and 156% year-over-year, respectively.
For the same quarter, its net income and earnings per share attributable to class A and class B common stockholders increased 201.3% and 202.8% from the prior-year quarter to $14.02 billion and $5.33, respectively.
Street expects META’s revenue and EPS for the fiscal first quarter ending March 2024 to increase 25.9% and 95.8% year-over-year to $36.07 billion and $4.31, respectively. The company surpassed consensus revenue and EPS estimates in each of the trailing four quarters.
The stock has gained 144.2% over the past year to close the last trading session at $503.02. Over the past nine months, it has gained 74.2%.
META’s robust prospects are reflected in its POWR Ratings. The stock has an overall B rating, equating to Buy in our proprietary rating system.
META has an A grade for Sentiment and Quality. It is ranked #12 within the same industry.
Click here for the additional POWR Ratings for META (Growth, Value, Momentum, and Stability).
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META shares rose $2.08 (+0.41%) in premarket trading Tuesday. Year-to-date, META has gained 42.89%, versus a 10.11% rise in the benchmark S&P 500 index during the same period.
About the Author: Neha Panjwani
From her school days, Neha harbored a profound fascination for finance, a passion that steered her toward a career as an investment analyst following the completion of her bachelor's degree in commerce. Currently enrolled in the CFA program, Neha is dedicated to further enriching her comprehension of investment fundamentals. Neha's primary objective is to aid retail investors in discerning optimal investment opportunities by diligently evaluating crucial aspects of financial instruments, with a primary focus on stocks and ETFs. Her commitment lies in empowering individuals to make informed and strategic investment decisions in the dynamic world of finance.
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