The internet sector is poised for expansion, thanks to increased digitization and government initiatives to ensure widespread internet access. Therefore, investors could buy fundamentally solid Alphabet Inc. (GOOGL) and Meta Platforms, Inc. (META).
The Biden-Harris Administration pledged over $1 billion in new funding to boost internet access and adoption, particularly on tribal lands.
Secretary of Commerce Gina Raimondo said, “Access to Internet is no longer a luxury, and thanks to President Biden’s leadership, we are taking action to close the digital divide for everyone in America. The Middle Mile program will invest more than $900 million in the infrastructure needed to connect communities, military bases, and Tribal lands to the Internet, lower the cost of access, and increase bandwidth.”
The global social media market is expected to grow at a CAGR of 12.7% to $3137.11 billion in 2027.
This expansion might be linked to expanding internet penetration and the global popularity of social networking sites. In addition, rising smartphone penetration and increased use of social media for advertising and marketing are driving market expansion.
The global internet service market is expected to grow at a CAGR of 8.2% until 2030. The market is growing steadily, and with key players increasingly adopting strategies, the market is likely to grow.
Investors’ interest in internet stocks is evident from the First Trust Dow Jones Internet Index Fund’s (FDN) 16.4% returns over the past six months.
Take a detailed look at the stocks mentioned above:
Alphabet Inc. (GOOGL)
GOOGL offers its various products and platforms internationally. It operates through Google Services: Google Cloud: and Other Bets segments. Its offerings include Android, Chrome, hardware, Gmail, Google Drive, Google Maps, Google Photos, Google Play, Search, and YouTube.
GOOGL’s forward non-GAAP PEG of 1.34% is 7.7% lower than the industry average of 1.45%.
GOOGL’s trailing-12-month ROCE of 23.33% is 609.7% higher than the industry average of 3.29%. Its trailing-12-month net income margin of 21.05x is 409.9% higher than the industry average of 4.13x.
In the second quarter, which ended on June 30, 2023, GOOGL’s revenue increased 7.1% year-over-year to $74.60 billion. Its income from operations came in at $21.84 billion, up 12.3% from the year-ago value. The company’s net income and EPS increased 14.8% and 19% from the prior-year quarter to $18.37 billion and $1.44, respectively.
The consensus revenue estimate of $304.34 billion for the year ending December 2023 represents a 7.6% increase year-over-year. Its EPS is expected to grow 22.5% year-over-year to $5.58 for the same period. GOOGL’s shares have gained 33% over the past nine months to close the last trading session at $129.08.
GOOGL’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, translating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
GOOGL has an A grade for Sentiment and a B for Quality. It is ranked #6 out of 59 stocks in the Internet industry. Click here for the additional POWR Ratings for Growth, Value, Momentum, and Stability for GOOGL.
Meta Platforms, Inc. (META)
META engages in the development of 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.
META’s forward non-GAAP PEG of 1% is 31.3% lower than the industry average of 1.45%.
META’s trailing-12-month ROTA of 10.91% is 605.7% higher than the industry average of 1.55%. Its trailing-12-month asset turnover ratio of 0.64x is 32.6% higher than the industry average of 0.48x.
META’s revenues for the fiscal second quarter that ended June 30, 2023, increased 11% year-over-year to $32 billion, while its income from operations stood at $9.39 billion, up 12.4% year-over-year. The company’s net income and EPS came in at $7.79 billion and $2.98, up 16.5% and 21.1% from the prior-year quarter, respectively.
Street expects META’s revenue to increase 13.6% year-over-year to $132.51 billion for the year ending December 2023. Its EPS is expected to grow 56.5% year-over-year to $13.44 for the same period. It surpassed EPS estimates in three of four trailing quarters. The stock has gained 158.1% over the past nine months to close the last trading session at $287.60.
META’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
It is ranked #7 in the same industry. It has an A grade for Sentiment and Quality and a B for Growth. To see additional META’s ratings for Value, Momentum and Stability, click here.
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GOOGL shares were trading at $132.53 per share on Wednesday morning, up $3.45 (+2.67%). Year-to-date, GOOGL has gained 50.21%, versus a 16.41% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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