The Internet services industry is experiencing various challenges, including macroeconomic factors like inflation, rate hikes, and supply chain issues. Despite these challenges, there are opportunities for investors to capitalize on undervalued stocks in this industry. In this article, we will explore three top picks in the internet services sector that have the potential for growth: Uber, Crexendo, and DoorDash. These companies operate in different segments of the industry, providing diverse investment options for individuals looking to diversify their portfolios.
About the Internet Services Industry
The internet services industry primarily comprises internet information providers like Facebook Inc. (FB). With increased digitization in various aspects of daily life and the COVID-19 pandemic’s impact, the industry has witnessed a significant shift towards online transactions. This trend has created more opportunities for internet service providers, particularly in the areas of IoT, automotive, and other connected devices.
Factors Shaping the Industry
The internet services industry is capital-intensive, requiring continuous investment in infrastructure. However, rising interest rates and the possibility of a recession have led some companies to scale back their capital spending. Additionally, debt levels have remained relatively steady, with limited appetite for acquisitions. Companies in the industry heavily rely on advertising and traffic acquisition to drive revenue. Furthermore, the collection of user data has allowed companies to develop artificial intelligence technologies and improve operational efficiency.
Zacks Industry Rank and Performance
The Zacks Internet – Services industry is ranked #70 out of more than 250 Zacks-classified industries, placing it among the top 28% in terms of performance. The industry’s stock market performance has been strong, outperforming the broader Technology sector and the S&P 500. Despite a recent pullback in prices, there is potential for growth in the industry, particularly due to positive estimate revisions and attractive valuations.
Top Picks in the Internet Services Industry
1. Uber Technologies (UBER)
Uber Technologies is a leading player in the ride-hailing, food delivery, and freight services. The company has experienced strong demand for its services, especially in ride-sharing and food delivery. In the last quarter, Uber achieved its first GAAP operating profit due to increased trips and continued cost discipline. The company’s earnings and revenue estimates for 2023 and 2024 indicate significant growth potential. With a Zacks Rank #1 (Strong Buy), Uber is an attractive investment option for those looking to capitalize on the evolving transportation and delivery market.
2. Crexendo (CXDO)
Crexendo provides cloud communication solutions, including Unified Communications as a Service (UCaaS) and Call Center as a Service (CCaaS). The company has consistently beaten earnings estimates and demonstrated revenue growth. Despite steady estimates for 2023 and 2024, Crexendo’s revenue is expected to increase by 35.9% in 2023 and 7.7% in 2024. With a Zacks Rank #2 (Buy), Crexendo is positioned to benefit from the growing demand for cloud communication services.
3. DoorDash (DASH)
DoorDash operates a logistics platform that connects merchants, consumers, and delivery personnel. The company has a strong presence in the restaurant and grocery delivery business, both domestically and internationally. DoorDash’s focus on improving operational efficiency and disciplined expense management has contributed to its positive performance. Although estimates for 2023 and 2024 have slightly decreased, the company is still expected to achieve significant revenue and earnings growth. With a Zacks Rank #2 (Buy), DoorDash presents an opportunity to invest in the growing food delivery market.
Concluding Thoughts
The internet services industry offers potential investment opportunities despite the challenges posed by macroeconomic factors. Uber, Crexendo, and DoorDash are three top picks within this industry that have demonstrated growth potential. Investors looking to capitalize on the digital transformation and changing consumer behaviors can consider these companies for their portfolios. However, it is crucial to conduct further research and analysis before making investment decisions.
Disclaimer: The views and opinions expressed in this article are solely those of the author and do not reflect the official position of Nasdaq, Inc.
