The Zacks Internet – Content the industry is benefiting from the reopening of economies, leading to increased advertising spending. The pandemic has opened up new growth channels for Internet content providers. Industry players have witnessed strong demand for e-commerce services from homebound consumers amid lockdowns and travel restrictions. Additionally, the resurgence of digital ad spending is a key catalyst. Industry participants like Airbnb (ABNB – free report) and Perion networks (PERI – Free Report) are benefiting from strong demand for digital offerings as well as the growing importance of video content and cloud-based applications. These companies are also expanding their presence across social media, display and connected TV, and search, driving revenue growth.
Description of the industry
The Zacks Internet – Content industry includes providers of video encoding platform, personal services, Internet content and information, staffing and outsourcing services, publishing, capital markets, multimedia services, home services, digital information and measurement, photo, video and music licensing and online travel agencies. The industry is witnessing a rapid change in consumer behavior and ongoing digitalization. Advertising is a major source of income for industry players, which is why these companies are trying to expand their digital presence to gain new customers. They are also expanding their presence across social media, display and connected TV, and search. Apart from the United States, a number of companies in this industry are located in Israel, the United Kingdom, Germany, Russia, and China.
3 Trends Shaping the Future of the Internet – Content Industry
Growing demand for digital offerings: The industry is characterized by rapid technological change, frequent product and service launches and ever-changing standards. A growing range of mobile, digital and cloud-based offerings by industry players is a major growth driver. Additionally, the proliferation of smart devices and increasing automation of the app development process bodes well.
The recovery in advertising spending bodes well: Industry participants focus on marketing efforts to increase traffic to websites. Advertising and subscriptions are the main sources of income for these companies. Additionally, the industry depends on consumer spending trends, which makes holiday spending a major deciding factor. As economies reopen, advertising spending picks up, which bodes well for industry players.
Increased Regulation Mars Outlook: Industry players, involved in online search and other social networking activities, are increasingly facing regulatory pressures, particularly in China, Russia and the European Union (EU) . The Chinese government has a number of regulations relating to direct advertising, which is a key source of revenue for these companies. The implementation of the General Data Protection Regulation, which entered into force on May 25, 2018 in the EU, adds to concerns. Additionally, the California Consumer Privacy Act (CCPA), which among other things restricts the sale of user data, is a headwind for industry players.
Zacks’ Industry Ranking Indicates Strong Prospects
The Zacks Internet – The content industry is housed in the wider Zacks IT and technology sector. It carries a Zacks Industry Ranking of #64, which places it in the top 25% of over 250 Zacks industries.
That of the group Zacks Industry Ranking, which is essentially the average of the Zacks Ranking of all member stocks, indicates a bullish outlook in the near term. Our research shows that the top 50% of industries ranked by Zacks outperform the bottom 50% by a factor of more than 2 to 1.
Before we outline a few stocks you might want to consider for your portfolio, let’s take a look at recent stock market performance and the industry valuation picture.
The industry lags behind shareholder returns
The Zacks Internet – Content industry has underperformed the broader Zacks IT & Technology sector as well as the Zacks S&P 500 composite over the past year.
The industry fell 37% during this period compared to the 6.6% decline in the S&P 500 and the 19.9% decline in the broader sector.
Year-over-year price performance
Current industry assessment
Based on the trailing 12-month price-to-sales (P/S) ratio, which is a multiple commonly used to value Internet – Content stocks, we see that the sector is currently trading at 4.44X against the S&P 500. 4.02X and the sector’s 12-month P/S of 4.07X.
Over the past five years, the industry has traded as low as 15.58X, as low as 3.77X and at the median of 8.54X, as seen in the chart below.
Rolling 12-month price-to-sales (P/S) ratio
2 Internet stocks to buy
Perion network: This Israel-based global technology company provides online advertising and search monetization solutions to brands and publishers in North America, Europe and internationally. Perion is committed to providing digital advertising solutions to capture consumer attention and drive engagement, as well as deliver advertisements across a portfolio of websites and mobile applications.
Perion is banking on strong growth in advertising revenue. Perion should benefit from the solid performance of its Search business, driven by strong demand from advertisers.
The Zacks consensus estimate for this Zacks #1 (Strong Buy) company in 2022 has risen 6.25% to $1.87 per share over the past 30 days.
Perion shares are down 9.1% year-to-date.
Pricing and Consensus: PERI
Airbnb: This San Francisco, Calif.-based online travel agency is enjoying a recovery in long-distance and cross-border travel. Growth in average daily rates remains positive. The growth in active listings in Latin America, North America and EMEA is also contributing.
Airbnb, which currently has a Zacks Rank #2 (Buy), should see an improvement in bookings and traffic trends.
Zacks’ consensus estimate for Airbnb’s 2022 earnings rose 16.4% to $2.20 per share in the past 30 days.
Airbnb shares are down 28.7% year-to-date.
Pricing and Consensus: ABNB