Whether it be online shopping or social media, secular forces are propelling consumer internet businesses forward. But it’s not all sunshine and rainbows as consumer purchasing power can make or break demand. Unfortunately, the market seems to believe stormy skies are ahead as the industry has shed 2.2% over the past six months. This drop was almost identical to the S&P 500’s decline.
Despite the lackluster result, a few diamonds in the rough can produce earnings growth no matter what, and we started StockStory to help you find them. On that note, here are two internet stocks boasting durable advantages and one we’re passing on.
One Consumer Internet Stock to Sell:
Chewy (CHWY)
Market Cap: $18.23 billion
Founded by Ryan Cohen, who later became known for his involvement in GameStop, Chewy (NYSE: CHWY) is an online retailer specializing in pet food, supplies, and healthcare services.
Why Are We Hesitant About CHWY?
- Sizable revenue base leads to growth challenges as its 9.8% annual revenue increases over the last three years fell short of other consumer internet companies
- Estimated sales growth of 4.5% for the next 12 months implies demand will slow from its three-year trend
- Gross margin of 28.8% is below its competitors, leaving less money to invest in areas like marketing and R&D
At $43.92 per share, Chewy trades at 27.7x forward EV/EBITDA. Check out our free in-depth research report to learn more about why CHWY doesn’t pass our bar.
Two Consumer Internet Stocks to Watch:
Meta (META)
Market Cap: $1.58 trillion
Famously founded by Mark Zuckerberg in his Harvard dorm, Meta Platforms (NASDAQ: META) operates a collection of the largest social networks in the world - Facebook, Instagram, WhatsApp, and Messenger, along with its metaverse focused Reality Labs.
Why Will META Outperform?
- 13.3% annual increases in its average revenue per user over the last two years show its platform is resonating with power users
- Disciplined cost controls and effective management resulted in a strong two-year EBITDA margin of 59.9%, and its profits increased over the last few years as it scaled
- META is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders
Meta is trading at $625.75 per share, or 14.2x forward EV/EBITDA. Is now the time to initiate a position? Find out in our full research report, it’s free.
LegalZoom (LZ)
Market Cap: $1.68 billion
Founded by famous lawyer Robert Shapiro, LegalZoom (NASDAQ: LZ) offers online legal services and documentation assistance for individuals and businesses.
Why Are We Positive On LZ?
- Subscription Units have grown by 10.5% annually, allowing for more profitable cross-selling opportunities if it can build complementary products and features
- Share buybacks catapulted its annual earnings per share growth to 289%, which outperformed its revenue gains over the last three years
- Free cash flow margin expanded by 13.1 percentage points over the last few years, providing additional flexibility for investments and share buybacks/dividends
LegalZoom’s stock price of $9.08 implies a valuation ratio of 9.8x forward EV/EBITDA. Is now a good time to buy? See for yourself in our in-depth research report, it’s free.
Stocks We Like Even More
The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.
While the crowd speculates what might happen next, we’re homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver’s seat and build a durable portfolio by checking out our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today for free.
