In this article, I evaluate prominent internet stocks Snap Inc. (SNAP) and Tripadvisor, Inc. (TRIP) to determine which has better upside potential. Based on a fundamental comparison of these stocks, I find TRIP to be the better choice for the reasons explained in this article.
The Internet industry is the basic cornerstone of today’s information society, connecting billions of people around the world.
Additionally, government efforts to enhance internet access are also helping the industry grow. BEAD plans to invest more than $42 billion under the federal Infrastructure Investment and Jobs Act (IIJA) to improve high-speed Internet access nationwide, including in every region of the United States.
Additionally, the internet travel industry is experiencing expansion due to travelers’ (especially younger age groups) preference for reliable transportation, customized services, and group tours. It is expected that the global online travel booking service market will grow at a compound annual growth rate of 9% by 2030.
Both companies beat consensus earnings per share estimates for the fiscal fourth quarter ended December 31, 2023. While TRIP beat consensus revenue estimates, SNAP failed to do the same in the same quarter.
In terms of value for money, TRIP is the clear winner. TRIP’s shares have risen 64.2% over the past nine months, while SNAP’s shares have fallen 7.2%. Compared to SNAP’s slight decline, TRIP returned 39.6% last year.
Here’s why I think TRIP will perform better in the short term:
Latest News
On March 26, SNAP and Integral Ad Science (IAS) announced a groundbreaking partnership to increase transparency for SNAP campaign advertisers using IAS’s AI-powered Total Media Quality (TMQ) brand safety and suitability measurement product.
On the other hand, on February 12, TRIP announced the establishment of a special committee to evaluate potential transactions. The committee is composed of independent directors and retains Centerview Partners LLC as its financial advisor.
recent financial results
SNAP’s revenue declined slightly year over year to $4.61 million for the fiscal year ending Dec. 31, 2023. Its free cash flow fell 37.1% year over year to $34.79 million. In addition, its non-GAAP net profit fell 48.1% and 47.1% year-on-year to $144.13 million and $0.09 per share.
In comparison, TRIP’s revenue increased 19.8% year over year to $1.79 billion in the fiscal year ending December 31, 2023. Adjusted net profit increased 70.6% and 72% year-on-year, reaching US$186 million and US$1.29 per share respectively.
expected financial performance
Street expects SNAP’s revenue and earnings per share to increase by 13.7% and 98.6% year-on-year in fiscal 2024, reaching US$5.23 billion and US$0.18 respectively. In the first fiscal quarter, SNAP is expected to report a loss of $0.05 per share, and revenue growth is expected to increase 13.4% year-on-year to $1.12 billion.
Conversely, analysts expect SNAP’s fiscal 2024 earnings per share and revenue to decline 19.3% and 8.8% year over year, respectively, to $1.54 and $1.94 billion. In the first fiscal quarter, TRIP expects earnings per share to be US$0.05, and revenue may increase 6% year-on-year to US$393.39 million.
Profitability
TRIP is more profitable, with a gross profit margin of 91.67% over the past 12 months, higher than SNAP’s 54.10%. TRIP’s trailing 12-month EBIT margin was 8.28%, while SNAP’s was negative 30.36%. Additionally, SNAP’s asset turnover ratio in the trailing 12 months was 0.58x, lower than TRIP’s 0.70x.
Valuation
In terms of forward EV/sales, TRIP currently trades at 1.88x, lower than SNAP’s 3.67x. TRIP’s forward P/E ratio is 1.96 times, lower than SNAP’s 3.52 times.
Therefore, TRIP is relatively more affordable.
Power rating
SNAP has an overall rating of D, equivalent to a “Sell” in our proprietary POWR Ratings system. TRIP has an overall rating of B, or “Buy.” POWR ratings are calculated taking into account 118 different factors, each weighted to the optimal degree.
Our proprietary ratings system also evaluates each stock based on eight different categories.
SNAP has a Quality Rating of D, consistent with its poor profitability. Its trailing 12-month leveraged free cash flow margin was 4.38%, which is 47.3% lower than the industry average of 8.31%. Its negative ROTC for the trailing 12 months was 12.93%, compared to the industry average of 3.31%.
TRIP, on the other hand, has a quality grade of A, which is consistent with the company’s high profitability. Its leveraged FCF margin and ROTC over the past 12 months are 13.81% and 5.18% respectively, which are 66.3% and 56.2% higher than the industry average of 8.31% and 3.31% respectively.
Among the 53 stocks in the Internet industry, SNAP ranks 52nd and TRIP ranks 5th.
In addition to what we’ve said above, we rated both stocks for growth, momentum, stability, value, and sentiment. Click here to view SNAP’s ratings. Get all of TRIP’s ratings here.
winner, champion
The Internet plays a central role in the unfolding digital revolution, with demand for cutting-edge online services growing to unprecedented levels. Internet companies benefit greatly from this growing usage. In the Internet space, both SNAP and TRIP are serious contenders for long-term investors.
However, after analyzing revenue growth, profitability, and recent moves, a compelling case emerges for TRIP to be the most popular investment option. With its solid financial performance, profitability and discounted valuation, TRIP is a promising option for long-term investors looking for sustainable returns in the dynamic world of internet stocks.
Our research shows that your odds of success increase when investing in stocks with an overall rating of Strong Buy or Buy. See all the top-rated stocks in the Internet industry here.
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TRIP shares were trading at $27.23 per share on Thursday afternoon, down $0.44 (-1.59%). Year to date, TRIP is up 26.47%, while the benchmark S&P 500 index has gained 9.14% during the same period.
About the author: Kritika Sarma
Kritika’s interest in risk tools and passion for writing led her to become an analyst and financial journalist. She earned a bachelor’s degree in business and is currently pursuing the CFA program. Her goal is to help investors discover untapped investment opportunities through her fundamental approach. more…