By breaking down physical barriers, consumer internet businesses are reshaping how people shop, connect, learn, and play. Luckily for them, the market seems to believe there is a long runway for growth as the industry has recorded a 29.3% gain over the past six months, beating the S&P 500 by 12.8 percentage points.
Nevertheless, investors should tread carefully as many internet companies pursue winner-take-all strategies, meaning losses can be hefty if their playbooks don’t pan out. With that said, here are three internet stocks boasting durable advantages.
Amazon (AMZN)
Market Cap: $2.47 trillion
Founded by Jeff Bezos after quitting his stock-picking job at D.E. Shaw, Amazon (NASDAQ:AMZN) is the world’s largest online retailer and provider of cloud computing services.
Why Do We Like AMZN?
- Amazon revolutionized the way consumers shop. This isn’t the only tailwind to its impressive revenue growth, as its highly profitable AWS segment has also driven top-line momentum.
- The company's best-in-class revenue growth coupled with modest operating leverage on its past infrastructure investments has led to elite EPS growth over a multi-year period.
- Though dominant, Amazon's capital-intensive e-commerce business means its profitability is structurally lower than its pure-play tech peers. Can the company pull it up, or are we reaching a ceiling?
At $231.53 per share, Amazon trades at 34.7x forward price-to-earnings. Is now the time to initiate a position? Find out in our full research report, it’s free.
Uber (UBER)
Market Cap: $206.1 billion
Notoriously funded with $7.7 billion from the Softbank Vision Fund, Uber (NYSE:UBER) operates a platform of on-demand services such as ride-hailing, food delivery, and freight.
Why Will UBER Beat the Market?
- Monthly Active Platform Consumers have increased by an average of 14.3% annually, giving it the potential for margin-accretive growth if it can develop valuable complementary products and features
- Performance over the past three years shows its incremental sales were extremely profitable, as its annual earnings per share growth of 151% outpaced its revenue gains
- Free cash flow margin increased by 15.4 percentage points over the last few years, giving the company more capital to invest or return to shareholders
Uber’s stock price of $99.25 implies a valuation ratio of 21.6x forward EV/EBITDA. Is now the right time to buy? See for yourself in our in-depth research report, it’s free.
Duolingo (DUOL)
Market Cap: $13.06 billion
Founded by a Carnegie Mellon computer science professor and his Ph.D. student, Duolingo (NASDAQ:DUOL) is a mobile app helping people learn new languages.
Why Is DUOL a Good Business?
- Monthly Active Users have grown by 36.5% annually, allowing for more profitable cross-selling opportunities if it can build complementary products and features
- Incremental sales over the last three years have been highly profitable as its earnings per share increased by 311% annually, topping its revenue gains
- Strong free cash flow margin of 35% enables it to reinvest or return capital consistently, and its improved cash conversion implies it’s becoming a less capital-intensive business
Duolingo is trading at $285.50 per share, or 40.9x forward EV/EBITDA. Is now a good time to buy? Find out in our full research report, it’s free.
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