Consumer internet businesses are redefining how people engage with the world by giving them instant connectivity and convenience. This influence cuts both ways though because they have high exposure to the ups and downs of consumer spending, and uncertainty surrounding this factor has capped the industry’s returns - over the past six months, its 3.6% gain has lagged the S&P 500 by 7.9 percentage points.
Investors should tread carefully as only a handful of companies in this space are positioned for long-term success due to the intense competition. On that note, here are three internet stocks that may face trouble.
Fiverr (FVRR)
Market Cap: $728.7 million
Based in Tel Aviv, Fiverr (NYSE: FVRR) operates a fixed price global freelance marketplace for digital services.
Why Does FVRR Worry Us?
- Value proposition isn’t resonating strongly as its active buyers averaged 9.4% drops over the last two years
- Estimated sales growth of 5.4% for the next 12 months implies demand will slow from its three-year trend
- Expensive marketing campaigns hurt its profitability and make us wonder what would happen if it let up on the gas
At $19.70 per share, Fiverr trades at 2.8x forward EV/EBITDA. If you’re considering FVRR for your portfolio, see our FREE research report to learn more.
Angi (ANGI)
Market Cap: $538.5 million
Created by IAC’s mergers of Angie’s List and HomeAdvisor, ANGI (NASDAQ: ANGI) operates the largest online marketplace for home services in the US.
Why Are We Cautious About ANGI?
- Struggled with new customer acquisition as its service requests averaged 20.6% declines
- Projected sales for the next 12 months are flat and suggest demand will be subdued
- Highly competitive market means it’s on the never-ending treadmill of sales and marketing spend
Angi is trading at $12.80 per share, or 4.9x forward EV/EBITDA. Read our free research report to see why you should think twice about including ANGI in your portfolio.
ACV Auctions (ACVA)
Market Cap: $1.46 billion
Founded in 2014, ACV Auctions (NASDAQ: ACVA) is an online auction marketplace for car dealers and wholesalers to buy and sell used cars.
Why Are We Wary of ACVA?
- Gross margin of 27.4% reflects its high servicing costs
- Highly competitive market means it’s on the never-ending treadmill of sales and marketing spend
- Poor free cash flow margin of 4.1% for the last two years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
ACV Auctions’s stock price of $8.48 implies a valuation ratio of 20.7x forward EV/EBITDA. Dive into our free research report to see why there are better opportunities than ACVA.
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