As digital transformation accelerates across almost all industries worldwide, the rising pervasiveness of internet use globally sets the stage for significant progress and expansion within the internet sector now and beyond.
In this article, I evaluated two internet stocks, Netflix, Inc. (NFLX) and Booking Holdings Inc. (BKNG), to determine which one may offer a better investment opportunity.
NFLX provides entertainment services, such as TV series, documentaries, feature films, and mobile games across various genres and languages, whereas BKNG provides travel and restaurant online reservation and related services worldwide.
Before comparing the fundamentals of the aforementioned stocks, let's consider the key elements driving the evolution of the internet industry.
The rising adoption of digitized solutions has revolutionized the methods by which individuals or organizations conduct their operations. According to Gartner, 91% of businesses are engaged in some form of digital initiative, and the majority of senior business leaders say digitalization is a priority.
Also, 89% of all companies have already adopted a digital-first business strategy or plan to do so.
The internet, an essential tool in our globalized society, has seen steady growth in demand due to the rapid dominance of hybrid home-office work environments, e-commerce, remote learning, interactive gaming, digital communication, and financial management.
As per Statista, the worldwide internet penetration rate as of April 2023 was 64.6%. Of this, approximately 92% of individuals in the United States have accessed the internet.
Moreover, amid immense government support to the industry, combined with the rising application of the internet, the global broadband internet service market is anticipated to grow to $470.49 billion by 2027, at a CAGR of 3.8%.
NFLX has gained 148.2% over the past year, whereas BKNG has gained 61.4%. Also, over the past month, BKNG has gained 6.8%, while NFLX has gained 4.8%. However, over the past five days, BKNG gained 4.2% to close the last trading session at $2,783.40, while NFLX lost 1.3% to close the last trading session at $440.21.
But which stock is a better buy now? Let’s find out.
Latest Developments
NFLX’s mobile apps were recently powered by Falcor, an internal API framework. They are now backed by Federated GraphQL, a distributed approach to APIs where domain teams can independently manage and own specific sections of the API. Three tools used for the GraphQL migration were AB testing, Replay Testing, and Sticky Canaries.
NFLX also started its crackdown against password sharing. The company would automatically log out those whom it believes are not part of the household paying for the membership.
On June 28, Agoda, BKNG’s Asia-based digital travel platform, announced its foray into wholesale distribution. By introducing this innovation, Agoda aims to strengthen its bond with global hotel partners and simplify the intricate distribution process.
On June 27, BKNG announced its new AI Trip Planner, launched in beta to a selection of U.S. travelers. The company offers a conversational and intuitive trip-planning experience by incorporating OpenAI’s ChatGPT API. This innovative launch should bode well for the company.
Recent Financial Results
For the fiscal first quarter that ended March 31, 2023, NFLX’s revenues increased 3.7% year-over-year to $8.16 billion. However, its operating income declined 13.1% from the year-ago quarter to $1.71 billion.
Also, its net income and earnings per share decreased by 18.3% and 18.4% from the prior year’s quarter to $1.31 billion and $2.88, respectively. Moreover, its total current liabilities stood at $8.32 billion as of March 31, 2023, compared to $7.93 billion as of December 31, 2022.
For the fiscal first quarter that ended March 31, 2023, BKNG’s revenues increased 40.2% year-over-year to $3.78 billion, while its operating income grew 158.6% year-over-year to $450 million.
Its adjusted EBITDA grew 89% from the year-ago value to $586 million. Also, the company’s non-GAAP net income and net income per share stood at $440 million and $11.60, up 173.3% and 197.4% from the previous-year quarter, respectively.
Past and Expected Financial Performance
BKNG’s total assets and levered FCF grew at 12.2% and 32% CAGRs over the past three years, respectively, while NFLX’s grew at 12.2% and 15.6% CAGRs over the same period.
BKNG’s consensus revenue and EPS estimates of $20.67 billion and $138.38 for the fiscal year (ending December 2023) reflect 20.9% and 38.6% year-over-year improvements, respectively.
Also, for the fiscal third quarter ending September 2023, BKNG’s revenue and EPS are expected to increase 16.7% and 28.1% year-over-year to $7.06 billion and $67.91, respectively. Moreover, the company topped the consensus EPS estimates in all four trailing quarters, which is impressive.
NFLX’s revenue and EPS for the fiscal year ending December 2023 are expected to rise 7.6% and 13.3% year-over-year to $34.01 billion and $11.27, respectively.
NFLX’s EPS fiscal second quarter ended June 2023 is expected to decline 10.8% year-over-year to $2.85, while its revenue is expected to increase 3.8% year-over-year to $8.27 billion. Moreover, NFLX failed to surpass consensus revenue estimates in three of the four trailing quarters, which is disappointing.
Profitability
BKNG has trailing-12-month gross profit and net income margins of 85.74% and 22.14% compared to NFLX’s 38.30% and 13.16%, respectively. BKNG’s trailing-12-month ROCE, ROTA, and ROTC of 147.75%, 22.78%, and 17.33% compare with NFLX’s 21.33%, 9.13%, and 11.20%, respectively.
Thus, BKNG is more profitable.
Valuation
In terms of forward EV/Sales, BKNG is trading at 4.87x, 19.1% lower than NFLX, which is currently trading at 6.02x. Also, BKNG’s forward EV/EBITDA multiple of 14.77 is 47.4% lower than NFLX’s 28.07.
Thus, BKNG is relatively affordable.
POWR Ratings
BKNG has an overall rating of B, translating to Buy in our POWR Ratings system, whereas NFLX has an overall C rating, which equates to Neutral. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. BKNG’s Quality grade of A is substantiated by its trailing-12-month ROCE of 147.75%, significantly higher than the industry average of 9.84%.
Also, NFLX’s B grade for Quality is evident from its trailing-12-month ROCE of 21.33%, 549% higher than the 3.29% industry average.
BKNG has a grade of B for Sentiment, consistent with its optimistic analyst estimates. On the contrary, NFLX’s Sentiment grade of C is justified by its mixed analyst estimates.
Within the Internet industry, BKNG is ranked #6, while NFLX is ranked #31 out of the 57 stocks.
Beyond what we’ve stated above, we have also rated both stocks for Growth, Momentum, Value, and Stability. Get all ratings of NFLX here. To view BKNG’s ratings, click here.
The Winner
In the aftermath of the global pandemic, the work environment has progressively shifted to remote and hybrid models, which also sparked a sharp increase in the adoption of gaming, streaming, and other technologies. Consequently, the demand for high-speed internet has also surged, bolstering the resilience and growth potential for internet companies such as BKNG and NFLX.
Nevertheless, considering BKNG’s robust profitability, attractive valuation, and favorable bottom-line forecasts, BKNG could be a more promising investment alternative to NFLX.
Moreover, the online travel agent, BKNG, is also well-positioned to remain buoyed since leisure travel has picked up pace. The U.S. Travel Association anticipates domestic leisure travel volume to grow faster year-over-year in 2024 and beyond. Also, inbound international travel is expected to grow by 31% this year, reflecting a bounce-back in demand.
Our research shows that the odds of success increase when one invests in stocks with an overall rating of Strong Buy or Buy. View all the top-rated stocks in the Internet industry here.
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NFLX shares were trading at $442.70 per share on Wednesday afternoon, up $2.49 (+0.57%). Year-to-date, NFLX has gained 50.13%, versus a 17.52% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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