A few days ago I penned an article after reading about J.P. Morgan’s Top Internet Stock Picks, 4 Top Internet Stock Picks from J.P. Morgan.
After seeing J.P. Morgan’s Top Picks, I decided to come up with my own 4 Top Internet Stock Picks. After all, most people like a Joes vs. “Pros” matchup.
Admittedly, I am not a big fan of most internet stocks because (1) they are very difficult to value and (2) I cannot see how a lot of them will ever earn enough profits to justify their valuations. Too many internet companies are priced to perfection.
That said, I wouldn’t want to miss out on the next Amazon or Google. And if there is money to be made by investing in internet stocks then their valuations don’t really matter – as long as you are not the guy who gets in when the bubble is ready to burst!
TripAdvisor is an online travel research company. It spun off from Expedia on December 20, 2011. TripAdvisor’s travel research platform aggregates reviews and opinions from its community about destinations, accommodations, restaurants and activities throughout the world. On the positive side, TripAdvisor has a strong brand, is growing internationally at a rapid rate (it already operates in China under daodao.com), and arguably provides the best platform in the world for travelers and marketers to interact. On the other hand, TripAdvisor’s performance is impacted by trends in the global travel industry and it faces competition for users from large search engines such as Google, Bing, Yahoo, and Baidu, as well as online rivals such as Priceline. All in all, TripAdvisor is the largest travel website in the world, has a compelling and differentiated business model, and there is a large and growing market ($43B+ spent on travel advertising each year). TripAdvisor has a clean site and outstanding product, a premiere brand, an efficient cost structure, and an effective mobile strategy. And this company will continue to further integrate social into the fabric of travel research.
Linkedin Corporation (NYSE:LNKD)
LinkedIn is the largest online professional network with more than 90 million members in over 200 countries and territories. Members can create, manage, and share their professional identity online, build and engage with their professional network, and find business opportunities. Businesses can search for talent, build their brands, and market their products and services. On the positive side, LinkedIn redesigned their site (made it cleaner and improved functionality), has a profitable business model, and will continue to broaden its user base. On the negative side, analysts have criticized LinkedIn for setting easy targets that it knows that it can beat and LinkedIn will have to grow at very high rates for years to come to justify its valuation. To achieve growth, LinkedIn appears willing to temporarily sacrifice margins to gain share leadership. That means that LinkedIn’s growth will depend on its ability to engage its users. So potential investors might want to consider monitoring metrics such as revenue per user and closely follow LinkedIn’s international expansion plans. Overall, LinkedIn has a solid business model in a rapidly evolving space.
eBay Inc (NASDAQ:EBAY)
The one company that appears on both of our lists is eBay. In case you didn’t already know, eBay is a company that connects buyers and sells through the world’s largest online marketplace. And eBay owns PayPal, which enables customers and merchants to make and receive payments quickly and securely online. As other analysts have noted, that is a nice one two combination. So what is not to like about this company? After all, compared to companies like Amazon, eBay looks like a bargain. Furthermore, eBay has demonstrated the ability to deliver results in a rough economy, PayPal is streamlining product development, eBay has significantly improved the user experience, and eBay is at the forefront of the mobile movement that is revolutionizing commerce worldwide. On the downside, shares of eBay are currently trading at a price that is only moderately attractive. On balance, eBay is a great company that only has one formidable competitor in the e-commerce space: Amazon.
Tencent (NASDAQOTH: TCTZF)
Tencent provides a comprehensive range of Internet and wireless value-added services. Through its various online platforms, including Instant Messaging QQ, web portal QQ.com, the QQ Game Platform under Tencent Games, multi-media social networking service Qzone and wireless portal, Tencent services the largest online community in China. The company fulfills the user’s needs for communication, information, entertainment and e-commerce. Tencent has four main streams of revenues: Internet value-added services (72% of revenues), mobile and telecommunications value-added services (8% of revenues), online advertising (9% of revenues) and e-commerce (10% of revenues). Although finding information on this company is challenging, from what I can discern owning this company is like owning China’s version of Facebook, eBay (including PayPal), “Netflix for gamers,” Google, and Amazon – or at least elements of those companies. Overall, the stock has been on a terror over the past few years and although growth expectations are high, this company continues to deliver. With a market cap of US$38 billion, the company is the third largest internet company in the world behind Google and Amazon.
My Foolish Take
All of these companies are growing at rapid rates, have solid business models, and have the potential to deliver solid returns in spite of their underlying valuations. A critical consideration when purchasing shares in internet companies is whether or not you are trading or investing. Another closely related, very important consideration is timing.
The article 4 Top Internet Stock Picks originally appeared on Fool.com and is written by Ryan Peckyno.
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