The internet has seamlessly integrated into our lives, becoming an indispensable part of our existence. Its ever-expanding reach and impact have created an insatiable demand for state-of-the-art, reliable Internet services.
As internet penetration increases, smartphone adoption and technology advances, the trajectory of this industry is set for unprecedented growth and innovation. Given this context, in this piece, I evaluated two Internet stocks, Snap Inc. (HURRY) and Despegar.com, Corp. (DESP), to determine which might be a better buy for investors.
SNAP is a leading camera company that offers an application known as Snapchat that connects people globally through short videos and pictures. In contrast, DESP is an Argentina-based online travel company that provides a broad suite of travel products across its two segments: Air; and packages, hotels and other travel products.
There is no denying that the frenzy around Artificial Intelligence (AI) has taken the internet by storm. It is an electrifying era in which the creative prowess of AI captivates the imagination, pushing the boundaries of what is possible and shaping a future of infinite possibilities.
Given the promising growth prospects of AI, companies across the enterprise spectrum have jumped on the bandwagon, debuting AI-powered generative chatbots, AI assistants, and AI services, which are poised to transform our lives and work. According to PwC analysts, artificial intelligence could add up to $15.7 trillion of global GDP in 2030which is higher than the current output of India and China combined.
At the same time, the global Internet user base has reached an astonishing milestone, with more than 5.16 billion individuals representing approximately 64.4% of the world population. Additionally, as many as 4.76 billion people are actively interacting with social media platforms around the world. These numbers highlight the widespread adoption and influence of the internet and social media in our modern world.
In addition, the global market for Internet services is expected to grow increase at a CAGR of 4.2%reaching a value of $651.74 billion by 2029. Internet companies DESP and SNAP are likely to benefit from the excitement surrounding AI.
SNAP is up 46.5% year-to-date to close its latest trading session at $12.93, while DESP is up 35.1% to close its latest trading session at $6.96. However, DESP is a clear winner in three-month price performance, with returns of 21.2% compared to SNAP’s 19.4% returns.
But which stock is a better buy now? Let’s find out.
Latest developments
Despite a challenging demand environment characterized by high inflation and significantly higher airfares, DESP held up well with a Take Rate of 13.8%, supported by the continued recovery in travel demand in Latin America, particularly in international traffic.
Considering the company’s performance, CEO Damian Scokin expects consolidated revenues of $640 million to $700 million and adjusted EBITDA of $80 million to $100 million for fiscal 2023.
On March 23, SNAP unveiled a new enterprise solution, AR Enterprise Services (ARES), that allows companies to seamlessly integrate Snaps Augmented Reality (AR) into their channels. This offer improves consumer experiences by providing personalized interactions and advanced tools to increase purchase confidence.
The latest innovation expands the company’s corporate offering and strengthens its position in the AR market.
Recent financial results
DESP’s gross bookings increased 44 percent year over year to $1.15 billion in the first quarter ended March 31, 2023. Its total revenue was $158.71 million, up 41 percent over the same period in 2022, while gross profit grew 54.1 percent year over year to $107.68 million.
The societies operating income was $7.26 million compared to an operating loss of $4.80 million for the same period a year ago. In addition, DESP Adjusted EBITDA was $17.27 million, reflecting a 154.5% year-over-year improvement.
SNAP revenues for the first quarter ended March 31, 2023 decreased 6.9% year over year to $988.61 million, while operating loss increased 34.5% from a year ago figure to $365.26 million.
For the same period, the company’s Adjusted EBITDA decreased 98.7% from the prior year quarter to $813,000. In addition, its net loss and net loss per share attributable to common stockholders were $328.67 million and $0.21, respectively.
Expected financial performance
Analysts expect DESP revenue to grow 18.2% in the fiscal second quarter (ended June 30, 2023), 24.3% in the current year and 12.7% in the following year, year-on-year. Similarly, the company’s EPS is expected to grow 125% in the reporting quarter, 115% this year and 117.8% next year.
Analysts expect SNAP’s revenue to decline 4.6% for the second quarter (ended June 30, 2023) and 1.3% in fiscal 2023. The company’s EPS is expected to decline 112.6% in the next quarter and 58.4% in the current year.
Profitability
SNAP’s 12-month revenue is 7.81 times that of DESP. Additionally, DESP is more profitable, with an EBIT margin and EBITDA margin of 1.86% and 8.07% compared to negative SNAPs of 28.71% and 24.31%, respectively. In addition, DESP gross profit margin of 67.25% compared to SNAP’s 59.94%. Additionally, DESP ROTC of 6.15% compares to negative SNAP of 11.19%.
Assessment
In terms of non-GAAP forward P/Es, DESP is currently trading at 32.45x, 81.9% lower than SNAP, which trades at 179.71x. Similarly, DESP’s forward price-to-sales ratio of 0.69 is 85.1% lower than SNAP’s 4.64.
Therefore, DESP is relatively affordable.
POWR ratings
DESP has an overall rating of B, which equates to Buy Our Property POWR ratings system. Conversely, SNAP has an overall rating of D, which translates to Sell. POWR ratings are calculated considering 118 different factors, with each factor weighted to an optimal level.
Our proprietary rating system also rates each stock based on eight distinct categories. DESP has a B grade for Value, in sync with its rating below that of the industry. In terms of EV/forward sales and EV/EBITDA, DESP is trading at 0.70x and 5.33x respectively, 42.1% and 45.7% below the industry averages of 1.21x and 9.81x.
Conversely, SNAP has a grade of C for Value, consistent with its mixed rating. SNAP’s EV/Sales forward multiple of 4.66 is 150.4% higher than the industry average of 1.86 times. On the other hand, its Price/Book futures multiple of 8.33 is 47.4% lower than the five-year industry average of 15.85.
Additionally, DESP has a grade B for growth, in sync with its solid financial performance in the most recently reported quarter. Conversely, SNAP has an F grade for growth, consistent with its deteriorating financials.
Additionally, DESP is rated B for Sentiment in line with optimistic analyst expectations. Conversely, SNAP has a D grade for Sentiment, consistent with its pessimistic analyst estimates. DESP’s consensus EPS estimate for the fiscal second quarter (ended June 30, 2023) is $0.02, while analysts expect a loss per share of $0.04 for SNAP over the same period.
Of the 58 titles in Internet sector, DESP ranks fourth, while SNAP ranks 52nd in the same D-rated sector.
In addition to the above, we also evaluated both stocks for Momentum, Stability, and Quality. Click here to view DESP classifications. Earn all SNAP ratings Here.
The winner
Given the widespread incorporation of AI in various vertical applications and industries, and the excitement surrounding generative AI, the demand for innovative Internet services is reaching a fever pitch. Therefore, major Internet companies DESP and SNAP are expected to benefit significantly from this environment.
However, SNAP’s relatively weak financials, lower profitability and poor growth prospects could make its competitor DESP the better buy now.
Our research shows that your odds of success increase when you invest in stocks with an overall rating of Strong Buy or Buy. View all the top rated stocks in the internet industry Here.
What to do next?
Check out 10 widely held stocks that our proprietary model shows have huge downside potential. Please make sure none of these deadly trap shares are lurking in your portfolio:
10 Stocks to SELL NOW! >
SNAP shares traded at $12.84 a share on Friday afternoon, down $0.09 or -0.70%. Year-to-date, SNAP is up 43.46%, compared to a 19.60% increase in the benchmark S&P 500 over the same period.
About the author: Shweta Kumari
Shweta’s deep interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. He uses his knowledge to help retail investors make educated investment decisions. Moreover…
More stock resources in this article
#SNAP #Snap #SNAP #Despegar.com #DESP #buy #Internet #StockNews.com
Image Source : stocknews.com
