Core Insights - The Zacks Internet - Content industry is facing challenges due to adverse macroeconomic conditions affecting ad spending, which is the primary revenue source for industry participants [1] - Despite these challenges, there is solid demand for digital offerings, particularly in video content and cloud-based applications, aided by the proliferation of AI and Generative AI [1] - Companies like Yelp and Opera Limited are expanding their presence in social media, display, connected TV, and search, contributing to top-line growth [1] Industry Description - The Zacks Internet - Content industry includes providers of video encoding platforms, personal services, Internet content, staffing, publishing, and online travel companies [2] - Advertising remains a major revenue source, prompting companies to enhance their digital presence and expand across various platforms [2] - The industry is experiencing rapid changes in consumer behavior and ongoing digitalization, with significant players located in the U.S., Israel, the U.K., Germany, Russia, and China [2] Trends Shaping the Industry - There is a growing demand for digital offerings, driven by technological advancements and the introduction of new products and services [3] - The proliferation of smart devices and increased automation in application development are positive indicators for industry growth [3] Industry Prospects - Marketing efforts are being intensified to boost website traffic, with advertising and subscriptions as key revenue sources [4] - The industry is sensitive to consumer spending trends, particularly during holiday seasons, but faces headwinds from macroeconomic challenges, persistent inflation, and higher interest rates [4] Regulatory Environment - Increased regulatory pressure is impacting industry participants, especially in China and the EU, with regulations affecting direct advertising and data protection [5] - The implementation of the Digital Markets Act in the EU aims to curb the market power of large online platforms, adding to the challenges faced by Internet content providers [5] Industry Ranking and Performance - The Zacks Internet - Content industry ranks 194, placing it in the bottom 21% of over 250 Zacks industries, indicating dull near-term prospects [6][7] - The industry's earnings outlook is negative, with a 2.8% decline in the Zacks Consensus Estimate for 2025 earnings since November 30, 2024 [8] Market Performance - The industry has underperformed compared to the broader Zacks Computer and Technology sector and the S&P 500, returning 6.1% over the past year versus 18.1% and 25.3% respectively [10] Current Valuation - The industry is currently trading at a trailing 12-month price-to-sales ratio of 6.49X, higher than the S&P 500's 5.62X but lower than the sector's 8.31X [13] Notable Companies - Yelp: Benefiting from higher ad spending and improved customer retention, but shares have declined 20.9% year-to-date [16][17] - Opera Limited: Experiencing an 8% year-over-year increase in search revenues, with a stable user base of 293 million, but shares have dropped 17.1% year-to-date [19][20]
2 Internet Content Stocks to Watch From a Challenging Industry