Are These 2 Stocks a Better Buy Than Alphabet (GOOGL)? The burgeoning access to the internet worldwide positions companies offering online services well for growth. Tech giant Alphabet (GOOGL) recently reported strong growth across its product range and the company....

The burgeoning access to the internet worldwide positions companies offering online services well for growth. Tech giant Alphabet (GOOGL) recently reported strong growth across its product range and the company. However, it might be worth considering investing in better-positioned internet stocks Yelp (YELP) and Travelzoo (TZOO). Read on….

Due to the rapid digital transformation occurring within many industries alongside the escalating prevalence of global internet usage, the Internet industry is well-placed for substantial progress and further expansion in the long run.

Global technology leader Alphabet Inc. (GOOGL), Google's parent company, has been at the forefront of many technological innovations. It has consistently been at the vanguard of numerous technological innovations. Moreover, its noteworthy Artificial Intelligence (AI) strides have placed the company on investors' radar.

Nevertheless, GOOGL is not entirely immune to economic downturns, as witnessed last year and at the beginning of 2023. Persistent inflationary pressures, increased interest rates, and regulatory challenges are forecasted to impact GOOGL's outlook this year.

In this article, let us understand why Yelp Inc. (YELP) and Travelzoo (TZOO), having superior POWR Ratings, have the potential to be more advantageous investments than GOOGL.

Before discussing these stocks, it would be prudent to examine GOOGL's recent performance.

In the past year, tech behemoth GOOGL has not observed significant stock price increase due to numerous macroeconomic issues that necessitated the firm to enforce financial constraints on aspects such as hiring, infrastructure costs, marketing expenditure, and tentative projects that may take a considerable time to become profitable.

The colossal corporation relies heavily on advertising for revenues, constituting about 79% of its total revenue. Consequently, budget cuts in this area heavily affected the company's top-line and bottom-line figures during the first quarter of 2023.

Advertisers, the main contributors to GOOGL's revenue, slashed their budgets as rising inflation and interest rates aggravated consumer spending concerns. GOOGL's CEO, Sundar Pichai, highlighted advertisers' thriftier spending habits and the implications of foreign exchange rates overseas as factors negatively impacting the corporation's overall performance.

On an optimistic note, the company is emphasizing AI more actively. It has integrated AI functionalities into its search engine offerings while enhancing its Bard chatbot, making it more efficient and smarter. To optimally exploit the benefits of AI, GOOGL is focusing its attention on Gemini and transferring personnel to work on high-priority initiatives.

GOOGL's second-quarter revenue exceeded analysts' estimates, bolstered by advertisement on the company's leading search engine, managing to retain competitiveness despite emerging competition from AI chatbots.

During the fiscal second quarter ended June 30, 2023, GOOGL's revenue rose 7.1% year-over-year to $74.60 billion, with Google advertising contributing $58.14 billion, up 3.3% year-over-year.

For the fourth consecutive quarter, it reported single-digit revenue growth as it grappled with a regression in digital advertising expenditure due to apprehensions about economic stability. Analysts forecast that GOOGL will return to double-digit growth in the year's fourth quarter.

In addition, Google Cloud has established a formidable presence in the market, as demonstrated by revenue growth of 28% year-on-year, reaching $8.03 billion and securing profitability for two successive quarters. Furthermore, Google Cloud enjoys the patronage of over 70% of Generative AI unicorns, an impressive demonstration of its dominance in the tech space. The company's steadfast innovation, visible in developments like the Blockchain Node Engine, set a promising tone for future growth.

However, GOOGL is embroiled in several looming hurdles, such as antitrust concerns, privacy controversies, monopoly accusations in the ad space, and intellectual property disputes. These challenges pose substantial risks to the company's operations and stock performance, factors that investors increasingly contemplate while making their investment decisions.

Moreover, the stock trades at a premium valuation. In terms of forward EV/Sales, the stock is currently trading at 5.08x, which is 167.6% higher than the industry average of 1.90x. Its forward Price/Sales multiple of 5.50 is 350% higher than the 1.22 industry average.

Furthermore, internet access continues to spread globally, with a 2.1% year-on-year increase taking the total number of users to 5.19 billion as of July 2023. This represents 64.5% of the global population. Factors driving the expansion of the Internet industry include soaring smartphone usage, widespread transition to cloud computing, incorporation of Internet of Things (IoT)-enabled platforms, and significant installation of wireless sensors in smart infrastructures.

In light of these trends, the digital content market is forecasted to reach $282.3 billion by 2032, growing at a 6.3% CAGR. Similarly, the global digital advertising and marketing sector is on track to hit an impressive $1.5 trillion by 2030, growing at a CAGR of 13.9%.

Given the industry's projected long-term growth trajectory, investments in Internet stocks TZOO and YELP could potentially generate superior returns compared to GOOGL. Therefore, it would be prudent to examine these alternatives thoroughly.

Yelp Inc. (YELP)

YELP operates a platform that connects consumers with local businesses in the United States and internationally. The company's platform covers various regional business categories. It also offers free and paid advertising products to businesses.

On April 25, YELP announced a series of new features that make it even easier for consumers to discover businesses that fit their needs and contribute helpful content on YELP.

YELP's trailing-12-month levered FCF margin of 19.28% is 145% higher than the 7.87% industry average. Its trailing-12-month ROCE, ROTC, and ROTA of 5.05%, 5.16%, and 3.53% are 53.7%, 34.7%, and 125.3% higher than the industry averages of 3.29%, 3.83%, and 1.57%, respectively.

YELP's revenues have grown at 6.1% and 7% CAGRs over the past three and five years, respectively. Moreover, its EBIT and net income have grown at 79.5% and 14.5% CAGRs over the past three years, respectively.

YELP's net revenue increased 12.9% year-over-year to $312.44 million for the fiscal first quarter that ended March 31, 2023. Its adjusted EBITDA rose 12.3% year-over-year to $54.03 million. Its net cash from operating activities increased 23.9% year-over-year to $74.24 million.

YELP's revenue and EPS are estimated to rise 7.9% and 54.6% year-over-year to $333.25 million and $0.78, respectively, in the fiscal third quarter ending September 2023. The company surpassed revenue estimates in each of the trailing four quarters, which is impressive.

YELP's stock has gained 64.2% year-to-date to close its last trading session at $44.88. Over the past three months, it gained 50%.

YELP's POWR Ratings reflect a promising outlook. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

It also has an A grade for Quality and a B for Value. Within the 58-stock Internet industry, YELP is ranked #2.

Beyond what we have stated above, one can see YELP's ratings for Growth, Stability, Sentiment, and Momentum here.

Travelzoo (TZOO)

TZOO is a global internet media company that offers travel, entertainment, and lifestyle experiences. The company's segments include Travelzoo North America; Travelzoo Europe; and Jack's Flight Club. As of June 30, 2023, the company had 30.8 million members worldwide.

On July 26, TZOO's board of directors authorized repurchasing up to 1 million shares of the company's outstanding common stock.

On July 20, TZOO won the top spot in the "Best Travel Deals Provider" category in a nationwide consumer survey in Germany. The win has particular significance given that Germany is the third-largest travel market in the world. The company was also recognized for "high customer value" in a second national survey this month, commissioned by the popular broadsheet BILD Zeitung.

On May 11, TZOO announced that its members-only service, Travelzoo META, had opened its doors to one million Founding Members, marking a new era in travel. This groundbreaking platform offers unique travel experiences in the Metaverse, allowing members to explore and enjoy virtual travel adventures. TZOO META aims to redefine the future of travel by leveraging the possibilities of the Metaverse, providing a novel way for individuals to immerse themselves in travel experiences.

TZOO's trailing-12-month net income margin of 12.37% is 321.4% higher than the 2.94% industry average. Its trailing-12-month ROCE, ROTC, and ROTA of 244.38%, 39.22%, and 16.15% are significantly higher than the industry averages of 3.29%, 3.83%, and 1.57%, respectively.

TZOO's EBITDA has grown at a 13.6% CAGR over the past five years. Moreover, its EBIT and net income have grown at 15.2% and 25.4% CAGRs over the past five years, respectively.

In the fiscal second quarter that ended June 30, 2023, TZOO's revenues increased 19.4% year-over-year to $21.13 million, while its gross profit stood at $18.25 million, up 17.5% year-over-year. The company's non-GAAP operating income increased 57.4% from the year-ago quarter to $4.15 million.

Net income attributable to TZOO increased 155.4% year-over-year to $2.63 million, while its net income per share rose 112.5% from the prior-year quarter to $0.17. Also, its total current liabilities stood at $36.23 million as of June 30, 2023, compared to $47.53 million as of December 31, 2022.

Analysts expect TZOO's revenue and EPS to increase 17.2% and 34.3% year-over-year to $18.58 million and $0.09 in the fiscal third quarter ending September 2023. For the fiscal year ending December 2023, its revenue and EPS are expected to increase 17.7% and 37.8% year-over-year to $83.07 million and $0.77, respectively.

Over the past year, the stock has gained 44.6% to close the last trading session at $7.36. It has also gained 65.4% year-to-date.

It is no surprise that the stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.

It has an A grade for Quality and B for Growth, Value, Momentum, and Sentiment. Within the same industry, it is ranked first.

Click here to see TZOO's additional ratings for Stability.

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GOOGL shares rose $0.06 (+0.05%) in premarket trading Monday. Year-to-date, GOOGL has gained 50.65%, versus a 20.69% 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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