The internet’s global reach offers Internet service providers a limitless market for growth and revenue. Despite undergoing several upheavals last year, including high-interest rates, inflationary pressures, and concerns about a slowing economy, the industry remains the backbone of the digital economy and is poised for long-term success.
Therefore, it could be wise for investors to invest in fundamentally sound internet services stocks Perion Network Ltd. (PERI), Liquidity Services, Inc. (LQDT), and Liberty TripAdvisor Holdings, Inc. (LTRPA) to reap the rewards of global growth and digital dominance.
Deployment of fiber optic networks and 5G technology is on the cards for internet service providers across the globe. Growing competition within this space leads to consolidations, market share improvement, and expansion of capabilities. The global 5G services market is expected to expand at a CAGR of 59.4% from 2023 to 2030.
According to McKinsey, using generative AI and other foundational models will be the game changer, reducing application development time and bringing powerful capabilities to nontechnical users.
As the prevalence of mobile network coverage and mobile internet adoption is on an upward trend, the global internet services market is expected to reach $644.87 billion by 2029, exhibiting a CAGR of 4.4% over the six years.
Moreover, government initiatives are a key driving factor aimed at rapidly developing and growing the internet infrastructure. For instance, the U.S. Department of Commerce announced funding high-speed internet infrastructure deployment, which is a $42.45 billion grant program created in the Bipartisan Infrastructure Law.
As the market expects a favorable turn, investing in fundamentally strong internet service stocks like PERI, LQDT, and LTRPA could help garner substantial returns. Let’s take a close look at these stocks.
Perion Network Ltd. (PERI)
Headquartered in Holon, Israel, PERI is a technology company offering online advertising and searching solutions to brands, agencies, and publishers through desktop, mobile, and social channels. The company operates across the three main pillars of digital advertising – ad search, social media, and display, including video and CTV advertising.
On May 3, backed by its strong performance and sustainability, PERI raised its annual guidance for the current year (fiscal year 2023) ending December 31. The company projects revenue of approximately $725-745 million and adjusted EBITDA above $155 million, up from the prior projection of $149-153 million.
On April 3, PERI announced a significant increase in the adoption of SORT®, its revolutionary solution that prioritizes anonymity and privacy. As the focus on Environmental, Social, and Governance (ESG) initiatives continues to expand, privacy concerns regarding collecting, storing, and utilizing personal data have become even more pronounced among consumers.
According to PERI’s recent survey of SORT® users, 67% of respondents consider privacy-safe solutions crucial for their brand image. This should help attract new customers and outperform other solutions.
In the first quarter (ended March 31, 2023), PERI’s total revenue increased by 15.8% year-over-year to $145.15 million. The company’s income from operations rose 48.5% from the year-ago value to $24.50 million, while its non-GAAP net income stood at $29.20 million, up by 44.2% year-over-year.
In addition, its adjusted EBITDA amounted to $31.27 million, reflecting an increase of 37.9% year-over-year. Also, its non-GAAP EPS increased 36.4% year-over-year to $0.60 in the same period.
Street expects PERI’s revenue to increase 20% year-over-year to $176 million for the second quarter (ended June 30, 2023). Its EPS estimate of $0.45 for the to-be-reported quarter is expected to register an 8.8% year-over-year growth. Moreover, it surpassed the revenue and EPS estimates in each of the four trailing quarters, which is promising.
Its revenue and EPS have increased at CAGRs of 34.1% and 65.8% over the past three years. Also, its levered FCF has grown at a 26.5% CAGR over the same period.
PERI’s trailing-12-month ROTA of 12.70% is 749.6% higher than the industry average of 1.49%. Also, its trailing-12-month net income margin and ROCE of 16.29% and 19.59% are 455.1% and 495.9% higher than the 2.94% and 3.29% industry averages, respectively.
The stock has gained 79.5% over the past year to close the last trading session at $34.25.
PERI’s POWR Ratings reflect this promising outlook. It has an overall rating of B, translating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Value, Sentiment, and Quality. Among the 30 stocks in the Internet - Services industry, it is ranked #4. To see additional POWR Ratings for Growth, Momentum, and Stability for PERI, click here.
Liquidity Services, Inc. (LQDT)
LQDT provides e-commerce solutions to manage, value, and sell inventory and equipment for business and government clients. It operates through four segments: GovDeals; Retail Supply Chain Group (RSCG); Capital Assets Group (CAG); and Machinio.
On May 19, LQDT’s wholly owned subsidiary Bid4Assets was selected by the Lyon County, Nevada treasurer’s office to conduct the county’s first-ever online tax-defaulted properties sale.
In the same month, the Roanoke Rapids selected GovDeals, to sell the Roanoke Rapids Theatre. The platform boosts visibility, increases sales value, and allows potential buyers to view the property and submit bids with ease.
Such developments reflect the growing demand for the company’s offerings and its vast market reach.
For the fiscal second quarter that ended on March 31, 2023, LQDT’s total revenue increased 19.3% year-over-year to $81.45 million, while its Gross Merchandise Value (GMV) grew 2.1% from the year-ago value to $282.70 million.
Also, the company’s non-GAAP adjusted EBITDA rose 7.7% from the prior-year quarter to $9.93 million. Non-GAAP adjusted net income, and EPS increased 10.4% and 17.6% year-over-year to $6.41 million and $0.20, respectively.
Analysts expect LQDT’s revenue and EPS for the fiscal third quarter (ended June 30, 2023) to increase 10.8% and 19.1% year-over-year to $77.42 million and $0.25, respectively. Additionally, it surpassed the revenue estimates in three of the four trailing quarters, which is impressive.
Its revenues and total assets have grown at CAGRs of 11.1% and 15.8% over the past three years, respectively. Over the same period, its tang book value increased at a CAGR of 3.1%.
The stock’s trailing-12-month gross profit and net income margin of 54.88% and 11.03% are 83.9% and 74.8% higher than the industry averages of 29.83% and 6.31%, respectively. Likewise, its trailing-12-month ROTA of 11.64% compares to the industry average of 5.12%.
LQDT’s shares have gained 30.5% over the past three months to close the last trading session at $16.95.
LQDT’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to Buy in our proprietary rating system.
It has an A grade for Quality and B for Stability and Sentiment. Within the same industry, it is ranked first. Click here to see the other ratings of LQDT for Growth, Value, and Momentum.
Liberty TripAdvisor Holdings, Inc. (LTRPA)
LTRPA operates as a travel guidance platform that connects people and audiences with travel partners. The company operates through three segments: Tripadvisor Core; Viator; and TheFork. Its travel platform provides online reservations and related services for destinations, accommodations, travel activities and experiences, and restaurants.
During the first quarter that ended on March 31, 2023, LTRPA’s total revenue increased 41.6% year-over-year to $371 million, while its adjusted OIBDA grew 20% from the year-ago value to $30 million.
During the same period, its cash and cash equivalents and total current assets amounted to $1.16 billion and $1.47 billion, up 10.4% and 12.8% compared to $1.05 billion and $1.30 billion as of December 31, 2022, respectively.
Its revenues and EBIT have increased at CAGRs of 3.1% and 6.7% over the past three years, respectively. Likewise, its levered FCF improved at a CAGR of 36.9% over the same period.
LTRPA’s trailing-12-month gross profit margin of 78.20% is 57.7% higher than the 49.59% industry average. In addition, its trailing-12-month levered FCF margin of 24.30% compares to the industry average of 7.35%.
Over the past month, the stock has gained 15.6% to close the last trading session at $0.76.
It’s no surprise that LTRPA has an overall rating of B, which equates to Buy in our proprietary rating system. It also has a B grade for Value, Momentum, Sentiment, and Quality. Out of 30 stocks in the same industry, it is ranked #3.
In addition to the POWR Ratings we’ve stated above, we also have LTRPA’s ratings for Growth and Stability. Get all LTRPA ratings here.
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PERI shares were trading at $34.63 per share on Tuesday afternoon, up $0.38 (+1.11%). Year-to-date, PERI has gained 36.88%, versus a 20.17% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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