2 Internet Stocks on Our Watchlist and 1 We Brush Off

Whether it be online shopping or social media, secular forces are propelling consumer internet businesses forward. These themes have enabled rapid growth for the industry, which has posted a 29.3% gain over the past six months compared to 16.5% for 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 are two resilient internet stocks at the top of our wish list and one we’re swiping left on.

One Consumer Internet Stock to Sell:

Etsy (ETSY)

Market Cap: $5.73 billion

Founded by a struggling amateur furniture maker Robert Kalin and his two friends, Etsy (NASDAQ:ETSY) is one of the world’s largest online marketplaces, focusing on handmade or vintage items.

Why Are We Wary of ETSY?

1. Increasing competition is redirecting attention to other platforms as it failed to grow its active buyers over the last two years
2. Projected sales are flat for the next 12 months, implying demand will slow from its three-year trend
3. Earnings per share were flat over the last three years while its revenue grew, showing its incremental sales were less profitable

Etsy is trading at $57.75 per share, or 9.6x forward EV/EBITDA. To fully understand why you should be careful with ETSY, check out our full research report (it’s free).

Two Consumer Internet Stocks to Watch:

Sea (SE)

Market Cap: $112.8 billion

Founded in 2009 and a publicly traded company since 2017, Sea (NYSE:SE) started as a gaming platform and has since expanded to offer a variety of services such as e-commerce, digital payments, and financial services across Southeast Asia.

Why Should You Buy SE?

1. Paying Users have grown by 15.3% annually, allowing for more profitable cross-selling opportunities if it can build complementary products and features
2. Strong engagement trends coupled with 13.6% annual growth in its average revenue per user demonstrate its platform’s stickiness with die-hard customers
3. Free cash flow margin expanded by 36.3 percentage points over the last few years, providing additional flexibility for investments and share buybacks/dividends

At $190.60 per share, Sea trades at 67.8x forward EV/EBITDA. Is now a good time to buy? Find out in our full research report, it’s free.

Coupang (CPNG)

Market Cap: $61.07 billion

Founded in 2010 by Harvard Business School student Bom Kim, Coupang (NYSE:CPNG) is an e-commerce giant often referred to as the "Amazon of South Korea".

Why Does CPNG Stand Out?

1. Has the opportunity to boost monetization through new features and premium offerings as its active customers have grown by 11.8% annually over the last two years
2. Performance over the past three years shows its incremental sales were extremely profitable, as its annual earnings per share growth of 32% outpaced its revenue gains
3. Free cash flow margin increased by 8 percentage points over the last few years, giving the company more capital to invest or return to shareholders

Coupang’s stock price of $33.51 implies a valuation ratio of 30.6x forward EV/EBITDA. Is now the right time to buy? See for yourself in our comprehensive research report, it’s free.

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