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Internet Content Industry Outlook Bright Amid Strict Scrutiny

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The Zacks Internet – Content industry comprises providers of video encoding platform, personal services, Internet content & information, staffing & outsourcing services, publishing, capital markets and media-based companies.

Apart from the United States, a number of companies in this industry are located in Israel, United Kingdom, Germany, Russia and China.

Here are the three major industry themes:

  • The industry is characterized by rapid technological change, frequent product and service introductions, and evolving standards. An expanding range of mobile and cloud-based offerings by industry participants is a major growth driver. Moreover, proliferation of smart devices and increasing automation of the application development process bode well.

 

  • Industry participants are focusing on marketing efforts to boost traffic to websites. Advertising and subscriptions are major sources of revenues for these companies. Also, the industry is dependent on consumer spending trends, making holiday spending a major deciding factor.

 

  • Industry participants, involved in online search and other social-networking activities, are increasingly facing regulatory pressure, particularly in China, Russia and the European Union (EU). The China government has a number of regulations related to direct advertising, which is a prime revenue source for these companies. Moreover, post Facebook’s (FB - Free Report) Cambridge Analytica scandal that affected 87 million users, the industry participants have been facing rigorous scrutiny in the United States as well as the EU. The implementation of General Data Protection Regulation, which took effect on May 25, 2018 in the EU, adds to the concerns.


Zacks Industry Rank Indicates Solid Prospects

The Zacks Internet - Content industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #56, which places it at the top 22% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates solid near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.

Industry Lags on Shareholder Returns

The Zacks Internet - Content industry has lagged the broader Zacks Computer and Technology sector as well as the Zacks S&P 500 composite over the past year.

The industry has declined 20.3% over this period against the 7.5% rally in both the S&P 500 and the broader sector.

One-Year Price Performance

 


Industry’s Current Valuation

On the basis of the trailing 12-month price-to-sales ratio (P/S), which is a commonly used multiple for valuing Internet - Content stocks, we see that the industry is currently trading at 9.22X compared with the S&P 500’s 3.25X and the sector’s trailing 12-month P/S of 3.62X.

Over the last five years, the industry has traded as high as 15.25X, as low as 3.20X and at the median of 5.51X, as the chart below shows.

Trailing 12-Month Price-to-Sales (P/S) Ratio

 


Stocks to Watch Out

None of the stocks in the industry sport a Zacks Rank #1 (Strong Buy) at present. However, we picked three stocks that have a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

These stocks are well positioned to grow in the near term.

Boston, MA-based Brightcove (BCOV - Free Report) is a leading global provider of cloud-based services for video. The stock has returned 28.4% over the past year. Moreover, the Zacks Consensus Estimate for its 2019 earnings has stayed at 9 cents over the past 30 days.

Price and Consensus: BCOV

 



Israel-based Perion Network (PERI - Free Report) provides advertising solutions. The stock has returned 70.4% over the past year. The Zacks Consensus Estimate for its 2019 bottom line has stayed at 39 cents over the past month.

Price and Consensus: PERI

 


Moscow-based Yandex (YNDX - Free Report) is an Internet-based company that develops technology products and services by leveraging the power of machine learning. The stock has returned 22.3% in the past year. The consensus mark for its 2019 earnings has declined by a penny to $1.34 over the past 30 days.

Price and Consensus: YNDX

 







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