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 still more growth ahead as the industry’s 12.8% gain over the past six months has nearly mirrored the S&P 500.
Although these companies have produced results, only those with the widest moats will survive as emerging red-hot players pop up regularly to take their slice of the pie. Taking that into account, here is one resilient internet stock at the top of our wish list and two that may face trouble.
Two Consumer Internet Stocks to Sell:
Bumble (BMBL)
Market Cap: $360.3 million
Started by the co-founder of Tinder, Whitney Wolfe Herd, Bumble (NASDAQ: BMBL) is a leading dating app built with women at the center.
Why Are We Wary of BMBL?
- Struggled with new customer acquisition as its paying users averaged 6.5% declines
- Platform has lost its luster lately as engagement trends have been sluggish and its average revenue per buyer has declined by 9.8% annually
- Forecasted revenue decline of 9.2% for the upcoming 12 months implies demand will fall even further
At $2.76 per share, Bumble trades at 2.9x forward EV/EBITDA. If you’re considering BMBL for your portfolio, see our FREE research report to learn more.
Chegg (CHGG)
Market Cap: $94.65 million
Started as a physical textbook rental service, Chegg (NYSE: CHGG) is now a digital platform addressing student pain points by providing study and academic assistance.
Why Do We Pass on CHGG?
- Services Subscribers have declined by 27% annually over the last two years, suggesting it may need to revamp its features or user experience to stay competitive
- Inability to adjust its cost structure while its revenue declined over the last few years led to a 13.5 percentage point drop in the company’s EBITDA margin
- Earnings per share have contracted by 26% annually over the last three years, a headwind for returns as stock prices often echo long-term EPS performance
Chegg’s stock price of $0.86 implies a valuation ratio of 3.7x forward EV/EBITDA. Check out our free in-depth research report to learn more about why CHGG doesn’t pass our bar.
One Consumer Internet Stock to Watch:
LegalZoom (LZ)
Market Cap: $972.8 million
Founded by famous lawyer Robert Shapiro, LegalZoom (NASDAQ: LZ) offers online legal services and documentation assistance for individuals and businesses.
Why Does LZ Stand Out?
- Subscription Units have grown by 10.7% annually, allowing for more profitable cross-selling opportunities if it can build complementary products and features
- Strong engagement trends coupled with 17.2% annual growth in its average revenue per user demonstrate its platform’s stickiness with die-hard customers
- Disciplined cost controls and effective management resulted in a strong two-year EBITDA margin of 23.1%, and its rise over the last few years was fueled by some leverage on its fixed costs
LegalZoom is trading at $5.74 per share, or 4.1x forward EV/EBITDA. Is now a good time to buy? Find out in our full research report, it’s free.
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