The Best Way to Invest in… the Internet?: Yahoo! Inc. (YHOO), eBay Inc (EBAY)

There’s no such thing as a sure bet in the investment world. The best we can do as investors is consider all of the facts available to us, meditate on those facts, consider possible futures, and then read ourselves to see if we are comfortable buying a piece of a certain company or not.

For myself, one trend that I am comfortable investing in right now is the Internet. Just 20 years ago, if I needed a recipe for something, I had to find it in a cookbook; if I had to write a paper, it probably involved long hours at the library.

Yahoo! Inc. (NASDAQ:YHOO)I don’t need to belabor how much the Internet changed the way we do certain things. Instead, I want to focus on what enabled me to find that recipe and that information for my paper so much faster: search engines.

Without a doubt, search engines are some of the most popular websites out there. Take a look at top 20 sites in the world, and you’ll see what I mean.

Rank Website Unique Visitors per Day
1 Google (NASDAQ:GOOG) 1 billion
2 Facebook (NASDAQ:FB) 1 billion
3 YouTube 824 million
4 Yahoo! Inc.  (NASDAQ:YHOO)! 462 million
5 Baidu (NASDAQ:BIDU) 292 million
6 Wikipedia* 311 million
7 Windows Live 205 million
8 Amazon 168 million
9 QQ* 183 million
10 Twitter 142 million
11 Blogspot* 153 million
12 Google India 111 million
13 Taobao 106 million
14 LinkedIn (NYSE:LNKD) 84 million
15 Yahoo! Japan 84 million
16 Bing* 97 million
17 MSN* 105 million
18 Google Japan 72 million
19 eBay, Inc (NASDAQ:EBAY) 69 million
20 Yandex 67 million

Sources: World Bank and alexa.com. *Sites are ranked by number of total unique visitors and pageviews over one month. The list provides the number of unique visitors on Feb. 19, 2013. Thus, though Wikipedia, QQ, Blogspot, Bing, and MSN have more total visits, they are ranked lower due to the total number of unique visits.

I believe that investing in search engines — and the cash they produce through advertisers — is a pretty solid bet.  This is especially true when you consider that well over half of the world’s population still doesn’t have regular access to the Internet.

Of these 20, I would say that four of them are as close to pure search plays as you can get: Google, Yahoo!, Baidu, and Yandex. Though Microsoft Corporation (NASDAQ:MSFT) has a hand in a number of companies mentioned above, and Bing is its primary search engine, the company is fundamentally different than the others.

So the question is: Of these four, which is should you buy?

First, let’s just look at the numbers
There are many ways to approach this question, so I’m going to start with the most direct form possible: simply crunching the valuation numbers.

Metric Google Yahoo! Baidu Yandex
Market cap $263 billion $25 billion $32 billion $8 billion
3-year average revenue growth 28.5% (10%) 78% 53%*
3-year average EPS growth 16.5% 84% 97% 45%*
P/E 25 6.5 19 32
P/FCF 20 16 19 31
PEG Ratio 1.3 1.5 0.6 0.7

Sources: Yahoo! Finance, Fool.com, SEC filings. *One-year results due to only being a public company since 2011.

One look at this list points out several important distinctions between these companies. Among the most important:

1). Google is by far the biggest of the four.

2). Yahoo! has somehow been able to increase profitability while losing revenue.

3). Baidu and Yandex look to be undervalued by traditional metrics.

Before going any further, though, I want to get back to my question: Which company should you buy? In reality, I’m asking the wrong question. The first one should be: What are you looking for in an investment?

After that, answering which you should buy becomes much easier. So below, I’ve summarized which are good buys for certain investors.

Google Inc (NASDAQ:GOOG)

This is the perfect stock for any investor looking for a safe, familiar stock that has a good chance of appreciating in value over the next decade. Lead by co-founder and visionary Larry Page, Google has its hands in several sticky businesses that win over customers for life outside of search alone: YouTube, Gmail, Chrome, and Android, to name a few.

It should be noted, however, that Google’s stock may not rise in price as much as the other players here. It is far more well entrenched and its home markets more saturated. And if Larry Page leaves any time soon, or if the company starts losing money on mobile searches, then it may be time to reevaluate your investment thesis in Google.

Yahoo! Inc. (NASDAQ:YHOO)

As I stated above, Yahoo! is an interesting case study. Though revenue has fallen, earnings have accelerated over the past couple of years. That’s because the company has been cutting costs and focusing more on its profitable divisions.

While Yahoo! isn’t much of a force anymore in the United States — Bing actually provides search results domestically — it is still a major player overseas. It is among the top 10 most-visited sites in countries like Brazil, Argentina, the Philippines, India, and Pakistan.

With new management in place that investors can finally believe in, the stock is perfect for someone looking for a turnaround investment. That means returns over the next couple of years could be huge… or negative, depending on if management can capitalize on Yahoo!’s international popularity.

Baidu.com, Inc. (ADR) (NASDAQ:BIDU) and Yandex NV (NASDAQ:YNDX)

Finally, we have Baidu and Yandex. If you’re looking for companies with an established presence in their home markets — China and Russia, respectively — with a little more risk involved than Google, these are perfect stocks.

It should be noted that one of the reasons these companies are undervalued is because they are going through the same spending and investment cycle that Google began a couple of years ago. An investment in either company is both an investment in their home countries, a vote of confidence in the truth behind their accounting numbers, and in their respective ability to make mobile profitable.

Given each company’s size, there’s still a lot of room for growth. Baidu is tempting because the population of China is so huge, and the Internet penetration still relatively small. And while Yandex certainly has a smaller base to work with, it is also a top 10 website in four populous former Soviet bloc countries.

So there you have it. Google is great for the safe investor, Yahoo! is prime for someone looking for a turnaround, while Yandex and Baidu are international plays that carry a higher risk/reward proposition.

The article The Best Way to Invest in… the Internet? originally appeared on Fool.com and is written by Brian Stoffel.

Fool contributor Brian Stoffel owns shares of Google, Amazon.com (NASDAQ:AMZN), LinkedIn, and Baidu. The Motley Fool recommends Amazon.com, Baidu, eBay, Facebook, Google, LinkedIn, and Yandex. The Motley Fool owns shares of Amazon.com, Baidu, eBay, Facebook, Google, LinkedIn, and Microsoft.

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