At last count, no fewer than eighty companies are reporting quarterly results over the next few hours. Of those, a healthy portion are tech or internet companies. Let’s take a look at three internet companies that dominate their respective pockets of the web: One that’s a buy, one that is on the verge of being downgraded to a hold and one that’s an outright sell.
Green Means Go
TripAdvisor Inc. (TRIP): As its name suggests, TripAdvisor is an online travel research company. Tripadvisor.com boasts one of the largest travel communities in the world, with more than 32 million members and 100 million reviews.
TRIP is a newcomer to Wall Street, but this stock has had a remarkably smooth ride from the get-go. TRIP is, and always has been, a buy in Portfolio Grader. And judging from the latest results, this shouldn’t change anytime soon. TripAdvisor lived up to analyst expectations for the third quarter.
For Q3 2013, average monthly unique visitors to TripAdvisor sites reached a record 260 million. This is up 60% over the same quarter last year. Over the same period, revenue increased 3% to $255.1 million, in line with analyst estimates. Meanwhile, net income declined 6% to $55.9 million. However, adjusted EPS came in at $0.45, also matching estimates.
All the while, the company repurchased $100 million, expanded its TV ad campaign and broke ground in new international markets. From here, the analyst community expects TripAdvisor to accelerate sales and earnings growth. Next year, the company is headed towards 23% top-line and 30% bottom-line growth. TRIP is a surprisingly steady internet stock and I see further upside from here. TRIP is a buy.
Yield Before Earnings
E*TRADE Financial Corp. (ETFC): Many of us are familiar with etrade.com, the discount brokerage service for self-directed investors.
ETFC has been on my radar for third-quarter earnings season. For the second quarter, the analyst community slashed the consensus earnings estimate in anticipation of a messy earnings announcement, but ETFC blew estimates out of the water and posted a 75% earnings surprise. This time around, analysts overcorrected and hiked up their estimates 20% over the past three months.
As it turns out, E*TRADE wasn’t able to live up to expectations, let alone post another earnings beat. The company reported a third-quarter profit of $47 million, or $0.16 per share. While this is a reversal from the loss of $29 million seen in Q3 2012, EPS missed the $0.17 consensus estimate.
I will say this: Another strong earnings beat is what this company really needed. Technically ETFC is a B-rated stock, but that’s only due to its Quantitative Grade. With ETFC shares down after the announcement, the ensuing drop in buying pressure could easily send this stock down to a hold. With smaller companies, I want to see nothing less than rock solid fundamentals so I would proceed with caution with this one.
Stop. Do Not Pass “GO.”
Amazon.com Inc. (AMZN): We all know Amazon.com. This is the biggest online retailer out there, where you can buy just about anything you can think of and have it delivered to your home in just a few days.
The online retail giant doesn’t report until after tomorrow’s close, but I wanted to be sure you had fair warning. I don’t expect Amazon to wow anyone with its third-quarter operating results. Right now, the analyst community is calling for 21% annual sales growth. But consider this: They’re also expecting Amazon to post a loss of $0.09 per share. In fact, in the past 90 days, analysts reversed their earlier estimate of $0.09 per share. And considering the company’s history of staggering earnings misses, this doesn’t bode well for the third quarter.
The company just hiked up its free shipping minimum to $35 per order, and the company is ramping up hiring in anticipation of the holiday shopping season. But from where I’m standing, that won’t be enough. AMZN is a D-rated sell and I don’t anticipate upgrading the stock anytime soon.
So if you’re looking to boost your exposure to internet companies, you’ll want to plan accordingly. The next few days are going to be big for this pocket of the tech sector, so please continue to run your positions through Portfolio Grader.