By breaking down physical barriers, consumer internet businesses are reshaping how people shop, connect, learn, and play. Despite the tailwinds, their demand largely hinges on consumer spending habits, which can be volatile. This has caused uneasiness over the past six months as the industry’s 8.2% return has trailed the S&P 500’s 12.8% gain.
Some companies can expand regardless of the economic backdrop, but the odds aren’t great for the ones we’re analyzing today. Taking that into account, here are three internet stocks best left ignored.
Fiverr (FVRR)
Market Cap: $313.5 million
Based in Tel Aviv, Fiverr (NYSE:FVRR) operates a fixed price global freelance marketplace for digital services.
Why Does FVRR Worry Us?
- Intense competition is diverting traffic from its platform as its active buyers fell by 14% annually
- Forecasted revenue decline of 23% for the upcoming 12 months implies demand will fall off a cliff
- Excessive marketing spend signals little organic demand and traction for its platform
At $8.70 per share, Fiverr trades at 1.2x forward price-to-gross profit. If you’re considering FVRR for your portfolio, see our FREE research report to learn more.
Wayfair (W)
Market Cap: $14.48 billion
Founded in 2002 by Niraj Shah, Wayfair (NYSE:W) is a leading online retailer of mass-market home goods in the US, UK, Canada, and Germany.
Why Are We Cautious About W?
- Struggled with new customer acquisition as its active customers averaged 2.2% declines
- Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 7.4%
- Gross margin of 30% is below its competitors, leaving less money to invest in areas like marketing and R&D
Wayfair is trading at $105.74 per share, or 17.3x forward EV/EBITDA. To fully understand why you should be careful with W, check out our full research report (it’s free).
EverQuote (EVER)
Market Cap: $697.7 million
Aiming to simplify a once complicated process, EverQuote (NASDAQ:EVER) is an online insurance marketplace where consumers can compare and purchase various types of insurance from different providers
Why Are We Hesitant About EVER?
- High marketing expenses suggest it needs to spend heavily on new customer acquisition to sustain momentum
EverQuote’s stock price of $19.80 implies a valuation ratio of 4.5x forward EV/EBITDA. Read our free research report to see why you should think twice about including EVER in your portfolio.
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