Whether it be online shopping or social media, secular forces are propelling consumer internet businesses forward. These themes have enabled rapid growth for the industry, which has posted a 1.4% gain over the past six months. This was a good place to be as the S&P 500 was flat.
Although these companies have produced results, only those with the widest moats will survive as emerging red-hot players pop up regularly to take their slice of the pie. On that note, here are three internet stocks we’re passing on.
Etsy (ETSY)
Market Cap: $6.65 billion
Founded by a struggling amateur furniture maker Robert Kalin and his two friends, Etsy (NASDAQ:ETSY) is one of the world’s largest online marketplaces, focusing on handmade or vintage items.
Why Do We Think Twice About ETSY?
- Active Buyers have stagnated over the last two years, indicating its platform may be struggling to differentiate itself from competitors
- Sales are projected to tank by 1.8% over the next 12 months as demand evaporates
- Earnings per share lagged its peers over the last three years as they only grew by 2.6% annually
Etsy’s stock price of $63.84 implies a valuation ratio of 9x forward EV/EBITDA. Read our free research report to see why you should think twice about including ETSY in your portfolio.
CarGurus (CARG)
Market Cap: $3.16 billion
Bringing transparency to a sometimes opaque process, CarGurus (NASDAQ:CARG) is a digital marketplace where auto dealers can connect with potential customers and where car buyers can browse, purchase, and obtain financing.
Why Is CARG Not Exciting?
- Likely needs to improve its platform or increase its marketing budget for penetration to accelerate as its paying dealers were flat over the last two years
- Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 6.1%
- Earnings per share lagged its peers over the last three years as they only grew by 5.8% annually
CarGurus is trading at $31.98 per share, or 11.9x forward EV/EBITDA. If you’re considering CARG for your portfolio, see our FREE research report to learn more.
Teladoc (TDOC)
Market Cap: $1.28 billion
Founded to help people in rural areas get online medical consultations, Teladoc Health (NYSE:TDOC) is a telemedicine platform that facilitates remote doctor’s visits.
Why Are We Wary of TDOC?
- Annual revenue growth of 6% over the last three years was below our standards for the consumer internet sector
- Decision to emphasize platform growth over monetization has contributed to 5.3% annual declines in its average revenue per user
- Forecasted revenue decline of 1.3% for the upcoming 12 months implies demand will fall off a cliff
At $7.25 per share, Teladoc trades at 4.2x forward EV/EBITDA. To fully understand why you should be careful with TDOC, check out our full research report (it’s free).
High-Quality Stocks for All Market Conditions
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 Growth Stocks for this month. 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-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today for free.