By breaking down physical barriers, consumer internet businesses are reshaping how people shop, connect, learn, and play. These themes have enabled rapid growth for the industry, which has posted a 45.7% gain over the past six months compared to 16.8% for the S&P 500.
However, long-term winners that can stand the test of time are rare in this space because competition is fierce with many well-capitalized companies. With that said, here are two internet stocks boasting durable advantages and one that may face trouble.
One Consumer Internet Stock to Sell:
Take-Two (TTWO)
Market Cap: $32.23 billion
Best known for its Grand Theft Auto and NBA 2K franchises, Take Two (NASDAQ:TTWO) is one of the world’s largest video game publishers.
Why Are We Cautious About TTWO?
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EBITDA margin declined by 13.2 percentage points over the last four years as it scaled
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Performance over the past three years shows its incremental sales were much less profitable, as its earnings per share fell by 84.9% annually
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Short cash runway increases the probability of a capital raise that dilutes existing shareholders
At $185 per share, Take-Two trades at 32.7x forward EV-to-EBITDA. To fully understand why you should be careful with TTWO, check out our full research report (it’s free) .
Two Consumer Internet Stocks to Watch:
Roblox (RBLX)
Market Cap: $49.53 billion
Best known for its wide assortment of user-generated content, Roblox (NYSE:RBLX) is an online gaming platform and game creation system.
Why Does RBLX Catch Our Eye?
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Daily Active Users have grown by 21.6% annually, allowing for more profitable cross-selling opportunities if it can build complementary products and features
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Revenue outlook for the upcoming 12 months is outstanding and shows it’s on track to gain market share
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Marketing expenses show it saves money by shying from over-the-top promotions to win new users
Roblox is trading at $75.18 per share, or 61.1x forward EV-to-EBITDA. Is now a good time to buy? See for yourself in our in-depth research report, it’s free .
Electronic Arts (EA)
Market Cap: $31.8 billion
Best known for its Madden NFL and FIFA sports franchises, Electronic Arts (NASDAQ:EA) is one of the world’s largest video game publishers.
Why Are We Positive On EA?
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Iconic platform is known by nearly everyone in its market, allowing it to acquire new users at little to no cost
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Disciplined cost controls and effective management result in a strong two-year EBITDA margin of 36.4%
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Strong free cash flow margin of 27.1% enables it to reinvest or return capital consistently, and its expanding margin gives it even more flexibility
Electronic Arts’s stock price of $130.11 implies a valuation ratio of 12.7x forward EV-to-EBITDA. Is now the right time to buy? Find out in our full research report, it’s free .
Stocks We Like Even More
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