In this piece, I have evaluated prominent internet stocks, Snap Inc. (SNAP) and Tripadvisor, Inc. (TRIP), to determine which has better upside potential. Based on a fundamental comparison of these stocks, I find TRIP to be a better pick for the reasons explained throughout this article.
The internet industry is a fundamental cornerstone of today's information society, linking billions of people worldwide.
Moreover, governmental efforts to enhance internet accessibility contribute to the industry's growth. The BEAD program, under the federal Infrastructure Investment and Jobs Act (IIJA), dedicates over $42 billion to improve nationwide high-speed internet access, including in various U.S. territories.
Furthermore, the internet travel industry is experiencing expansion fueled by traveler preferences for dependable transportation, tailored services, and group excursions, particularly among younger demographics. The worldwide online travel booking services market is projected to grow at a CAGR of 9% until 2030.
Both the company exceeded consensus EPS estimates in the fiscal fourth quarter ended December 31, 2023. While TRIP surpassed consensus revenue estimates, SNAP failed to do so in the same quarter.
When it comes to price performance, TRIP is the clear winner. Over the past nine months, TRIP’s stock has gained 64.2%, compared to SNAP’s 7.2% decline. TRIP has returned 39.6% over the past year, compared to SNAP’s marginal decline.
Here are the reasons I think TRIP could perform better in the near term:
Latest Developments
On March 26, SNAP and Integral Ad Science (IAS) announced a pioneering partnership to enhance transparency for advertisers on SNAP campaigns using IAS's AI-powered Total Media Quality (TMQ) Brand Safety and Suitability Measurement product.
On the other hand, on February 12, TRIP announced the formation of a Special Committee to evaluate potential transactions. The committee, comprising independent directors, has engaged Centerview Partners LLC as its financial advisor.
Recent Financial Results
SNAP’s revenue during the fiscal year ended December 31, 2023, declined marginally year-over-year to $4.61 million. Its free cash flow decreased 37.1% year-over-year to $34.79 million. Additionally, its non-GAAP net income fell 48.1% and 47.1% year-over-year to $144.13 million and $0.09 per share.
In contrast, in the fiscal year that ended December 31, 2023, TRIP’s revenue rose 19.8% year-over-year to $1.79 billion. Its adjusted net income improved 70.6% and 72% year-over-year to $186 million and $1.29 per share.
Expected Financial Performance
Street estimates SNAP’s revenue and EPS to rise 13.7% and 98.6% year-over-year to $5.23 billion and $0.18 in the fiscal year 2024. For the fiscal first quarter, SNAP is expected to report a loss per share of $0.05, and its revenue is likely to rise 13.4% year-over-year to $1.12 billion.
Conversely, analysts expect SNAP’s EPS and revenue for fiscal year 2024 to decline 19.3% and 8.8% year-over-year to $1.54 and $1.94 billion, respectively. For the fiscal first quarter, TRIP is expected to report an EPS of $0.05, and its revenue is likely to rise 6% year-over-year to $393.39 million.
Profitability
TRIP is more profitable, with a trailing-12-month gross profit margin of 91.67%, higher than SNAP’s 54.10%. TRIP’s trailing-12-month EBIT margin of 8.28% compares to SNAP’s negative 30.36%. Moreover, SNAP’s trailing-12-month asset turnover ratio of 0.58x is lower than TRIP’s 0.70x.
Valuation
In terms of forward EV/Sales, TRIP is currently trading at 1.88x, lower than SNAP’s 3.67x. TRIP’s forward P/S of 1.96x is lower than SNAP’s 3.52x.
Thus, TRIP is relatively more affordable.
POWR Ratings
SNAP has an overall rating of D, which equates to Sell in our proprietary POWR Ratings system. TRIP has an overall rating of B, which translates to Buy. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories.
SNAP has a D grade for Quality, consistent with its poor profitability. Its trailing-12-month leveraged FCF margin of 4.38% is 47.3% lower than the industry average of 8.31%. Its trailing-12-month negative ROTC of 12.93% compares to the 3.31% industry average.
On the other hand, TRIP has an A grade for Quality, in sync with the company’s high profitability. Its trailing-12-month leveraged FCF margin and ROTC of 13.81% and 5.18% are 66.3% and 56.2% higher than the industry averages of 8.31% and 3.31%.
Of the 53 stocks in the Internet industry, SNAP is ranked #52, while TRIP is ranked #5 in the same industry.
Beyond what we’ve stated above, we have also rated both stocks for Growth, Momentum, Stability, Value, and Sentiment. Click here to view SNAP’s ratings. Get all the ratings of TRIP here.
The Winner
Amidst the unfolding digital revolution, the Internet assumes a central role, fueled by a burgeoning demand for cutting-edge online services reaching unprecedented levels. Internet companies are benefiting strongly from this growing usage. In the Internet sector, both SNAP and TRIP stand out as significant contenders for long-term investors.
However, after analyzing revenue growth, profitability, and recent initiatives, a compelling case emerges for TRIP as the favored investment option. Through its solid financial performance, profitability, and discounted valuation, TRIP presents itself as a promising choice for long-term investors seeking sustainable returns in the dynamic world of Internet stocks.
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.
What To Do Next?
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
TRIP shares were trading at $27.23 per share on Thursday afternoon, down $0.44 (-1.59%). Year-to-date, TRIP has gained 26.47%, versus a 9.14% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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