Zacks Internet – The content industry is suffering from changing trends caused by the pandemic, along with difficult macro-economic conditions globally. Persistent inflation and high interest rates have a negative impact on advertising spending, which is a major source of revenue for industry players. The ongoing war between Russia and Ukraine has become too much for the prospects of industry participants in Europe. Nevertheless, industry participants like it Airbnb (ABNB – Free Report) and Perion networks (FAIRY – Free Report) benefits from strong demand for digital offerings, as well as the growing importance of video content and cloud-based applications. These companies are also driving top-line growth by expanding their presence in social media, display and connected TV, and search.
The Zacks Internet – Content industry consists of video encoding platforms, personal services, Internet content and information, staffing and outsourcing services, publishing, capital markets, media-based, home service, digital insights and measurement, stock photo, video and music licensing providers. , and online travel companies. The industry is witnessing a rapid change in consumer behavior and continuous digitization. Advertising is a major source of revenue for industry players, so these companies are looking to expand their digital presence to win over customers. They are also expanding their presence in social media, display and connected TV, and search. In addition to the United States, a number of companies in this industry are located in Israel, Great Britain, Germany, Russia and China.
3 Trends Shaping the Future of the Internet – The Content Industry
Demand for Digital Offerings is Growing: The industry is characterized by rapid technological changes, frequent introduction of products and services, and evolving standards. Expanding mobile, digital and cloud-based offerings by industry players are key growth drivers. Moreover, the proliferation of smart devices and increased automation of the application development process bodes well.
Industry Prospects are driven by Advertising Spending Rate: Industry players are focusing their marketing efforts to increase traffic to websites. Advertising and subscriptions are the main source of income for these companies. Also, the industry depends on consumer spending trends, making holiday spending a key determinant. The reopening of economies is spurring a recovery in ad spending, which bodes well for industry players in the long run. However, macroeconomic challenges, the lingering effects of the pandemic, rampant inflation and higher interest rates are expected to hurt ad spending in the near term.
Growing Rules Mar Prospects: Industry participants involved in online search and other social networking activities face increasing 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. The implementation of the General Data Protection Regulation in the EU, which entered into force on May 25, 2018, raises concerns. The California Consumer Privacy Act (CCPA), which among other things restricts the sale of user data, is another windfall for industry players.
The Zacks Industry Rank indicates a weak outlook
The Zacks Internet – Content industry is located within the broader Zacks Computer & Technology sector. It carries a Zacks Industry Rank of #131, placing it in the bottom 48% of over 250 Zacks industries.
The Zacks Industry Rank, which is the average of the Zacks Rank of all member stocks in the group, indicates a weak near-term outlook. Our research shows that the top 50% of Zacks Rank industries outperform the bottom 50% by 2-to-1.
Before introducing a few stocks you may want to consider for your portfolio, let’s take a look at the industry’s recent stock performance and valuation picture.
Industry Lags in Shareholder Returns
The Zacks Internet – Content industry has underperformed the broader Zacks Computer & Technology sector as well as the Zacks S&P 500 composite over the past year.
The industry fell 47.8% over the period, compared with a 17.4% decline for the S&P 500 and a 34.5% decline for the broader sector.
One Year Price Performance
Current Assessment of the Industry
Based on the trailing 12-month price-to-sales (P/S) ratio, which is commonly used to value Internet – Content stocks, we see that the industry is currently trading at 4.44X relative to the S&P 500. 4.02X and the sector’s trailing 12-month P/S of 4.07X.
As shown in the chart below, the industry has traded at a median of 15.58X, a low of 3.77X and a median of 8.54X over the past five years.
Trailing 12-Month Price-Sales (P/S) Ratio
2 Internet Stocks to Buy
Perion: The Israel-based global technology company provides online advertising solutions and search monetization to brands and publishers in North America, Europe and internationally. Perion is committed to providing digital advertising solutions to capture and engage consumers, as well as serving ads across a portfolio of websites and mobile apps.
Perion is working on strong ad revenue growth. PERI is expected to benefit from the strong performance of its Search business, driven by strong advertiser demand.
The Zacks Consensus Estimate for 2022 earnings for this Zacks Rank #1 (Strong Buy) company has risen 6% over the past 30 days to $2.12 per share.
Shares of Perio are up 8.1% year to date.
Price and Consensus: PERI
Airbnb: This San Francisco, CA-based online travel company works on recovery for long-haul and cross-border travel. Growth in average daily rates remains positive. Growing active listings in Latin America, North America and EMEA are also contributing well.
Airbnb, which currently has a Zacks Rank #2 (Buy), is expected to see improvements in bookings and traffic trends.
The Zacks Consensus Estimate for Airbnb’s 2022 earnings has risen 18.3% to $2.58 per share over the past 30 days.
Shares of Airbnb are down 35.7% year to date.
Price and Consensus: ABNB