The Zacks Internet – Content industry contributors like it Airbnb (ABNB: – Free Report) RELX: (RELX: – Free report), and Perion network (PERRY: – Free Report) are taking advantage of the high demand for digital offerings, as well as the growing importance of video content and cloud-based applications. These companies are also expanding their presence on social media, display and connected TV, and search, driving lead growth. However, the industry is suffering from a reversal of trends caused by the pandemic, along with challenging global macroeconomic conditions. Persistent inflation and higher interest rates are having a detrimental effect on advertising costs, the main source of income for industry players. The ongoing war between Russia and Ukraine has weighed on the prospects of industry participants in Europe.
Industry description
The Zacks Internet – Content industry includes video encoding platforms, personal services, Internet content and information, staffing and outsourcing services, publishing, capital markets, media-based, home services, digital imaging and measurement, stock photography, video and music licensing, and online travel companies. The industry is witnessing a rapid change in consumer behavior and continued digitization. Advertising is the main source of income for industry participants. Therefore, these companies are trying to expand their digital presence to win customers. They are also expanding their presence on social media, display and connected TV and search. In addition to the US, a number of companies in this sector are located in Israel, Great Britain, Germany, Russia and China.
3 Trends Shaping the Future of the Internet content industry
Demand for digital offerings is growingThe industry is characterized by rapid technological change, frequent product and service introductions, and evolving standards. The expanding range of mobile, digital and cloud-based offerings by industry players is a key driver of growth. Moreover, the proliferation of smart devices and increasing automation of the application development process bodes well.
Industry outlook is driven by advertising spending rateIndustry players focus on marketing efforts to drive website traffic. Advertising and subscriptions are the main sources of income for these companies. In addition, the industry depends on trends in consumer spending, making holiday spending a major determining factor. The reopening of economies is spurring a recovery in ad spending, which bodes well for industry players in the long run. However, macroeconomic challenges, lingering effects of the pandemic, rampant inflation and high interest rates are expected to hurt ad spending in the near term.
Adding Regulations to Mar Prospectsindustry participants involved in online search and other social networking activities are increasingly facing regulatory pressure, particularly in China and the European Union (“EU”). The Chinese government has a number of regulations regarding direct advertising, which is the main source of income for these companies. Adding to the concerns is the implementation of the General Data Protection Regulation in the EU on May 25, 2018. California’s consumer privacy law, which among other things restricts the sale of user data, is another headwind for industry players.
The Zacks Industry Rank indicates a bright outlook
The Zacks Internet – Content industry is located within the broader Zacks Computers & Technology sector. It carries a Zacks Industry Rank #93, placing it in the top 37% of over 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all member stocks, indicates a bright near-term outlook. Our research shows that the top 50% of Zacks ranked industries outperform the bottom 50% by a factor of more than two to one.
Before we introduce a few stocks you might want to consider for your portfolio, let’s take a look at the sector’s recent stock market performance and valuation picture.
The industry outperforms shareholder returns
The Zacks Internet – Content industry has outperformed the broader Zacks Computer and Technology sector as well as the Zacks S&P 500 Composite over the past year.
The industry is up 27% over the period, compared with 14.4% for the S&P 500 and 22.8% for the broader sector.
One year price performance
Current assessment of the industry
Based on the trailing 12-month price-to-sales ratio (P/S), a commonly used multiple for valuing Internet content stocks, we see that the industry is currently trading at 6.50X, compared to the S&P 500’s 3.92X and the sector’s 4.34X.
Over the past five years, the industry has traded as high as 15.58X and as low as 4.72X, with an average of 8.22X, as the charts below show.
The trailing 12-month price-to-sales (P/S) ratio
3 Internet to buy stocks
AirbnbBased in San Francisco, this company is taking advantage of the high demand in the tourism industry. The continued strength of Nights and Experiences booked across all regions, particularly Asia Pacific, remains a breeze. Moreover, the increase in gross nights recorded in high-density urban areas is a big positive.
The Zacks Consensus Estimate for this Zacks Rank #1 (Strong Buy) company’s 2023 earnings has declined 1.1% to $3.47 per share over the last 30 days.
Airbnb shares are up 74% year-to-date.
Price and Consensus: ABNB
PerioBased in Israel, this global technology company provides online advertising solutions and search monetization for brands and publishers in North America, Europe and internationally. Perion is committed to providing digital advertising solutions to capture consumer attention and drive engagement, and deliver ads across a portfolio of websites and mobile apps.
Perion is benefiting from strong demand for its video solutions. For the second quarter of 2023, it expects revenue growth of 20% and adjusted EBITDA growth of 40%.
The Zacks Consensus Estimate for this Zacks Rank #2 (Buy) company’s 2023 earnings rose 3.2% to $2.93 per share over the past 30 days.
Perion shares are up 34% year-to-date.
Price and Consensus: PERI
RELX:This London-based provider of analytics and decision tools is benefiting from an expanding customer base. Strong adoption of Lexis+ has been a key driver of growth in the legislative and corporate end markets. RELX is looking at an expanding product portfolio.
The Zacks Consensus Estimate for this Zacks Rank #2 company’s 2023 earnings rose 4.4% over the last 30 days to $1.42 per share.
Shares of RELX are up 20.8% over the past year.
Price and Consensus: RELX
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