Industry Overview - The Internet - Services industry is influenced by macroeconomic factors such as inflation, interest rates, labor markets, and supply chain issues, with a generally positive outlook in a stronger economy [1][6] - Companies in this industry rely on substantial software and hardware infrastructure to deliver services globally, accessible via personal connected devices [5] - The industry operates under two primary models: ad-based and ad-free, with major players including Alphabet, Baidu, and Akamai, alongside emerging companies like Dropbox and Crexendo [6] Investment Opportunities - Dropbox (DBX) and Crexendo (CXDO) are highlighted as attractive investment options due to their growth prospects, AI adoption, and cost-cutting measures [2][17] - The Zacks Internet - Services industry has improved its rank, now positioned in the top 40% of 245 Zacks-classified industries, indicating several opportunities [9][11] Financial Performance - The industry has experienced a net gain of 29.9% over the past year, outperforming the broader Technology sector's 22.2% gain and the S&P 500's 15.6% gain [12] - The forward 12-month price-to-earnings (P/E) ratio for the industry is currently at 21.24X, which is a premium to its median value of 19.76X over the past year but a discount to the S&P 500's 22.8X [15] Company-Specific Insights Dropbox (DBX) - Dropbox has integrated AI into its business to enhance customer experience, leading to a 15.6% increase in share price over the past year [20] - The company beat earnings estimates by 19.5% in the last quarter, with 2025 revenue and earnings growth expected at -2.2% and 7.6%, respectively [20] Crexendo (CXDO) - Crexendo operates in a niche market, providing cloud communication solutions and has seen significant growth opportunities through AI integration [23][24] - The company topped revenue estimates by 2.2% and earnings by 75% in the last quarter, with expected revenue and earnings growth of 10.9% and 9.1% for the following year [26]

Core Insights - RingCentral reported Q2 2025 results that exceeded analyst expectations, with GAAP revenue of $620 million and non-GAAP EPS of $1.06, reflecting a year-over-year revenue growth of 4.6% and EPS growth of 16.5% [1][2] Financial Performance - GAAP revenue for Q2 2025 was $620 million, surpassing the estimate of $617.78 million, and up from $593 million in Q2 2024 [2] - Non-GAAP EPS was reported at $1.06, compared to the consensus estimate of $1.02 and $0.91 in Q2 2024 [2] - Operating margin improved to 22.6%, up from 20.9% in the previous year [2] - Net cash from operating activities reached $167 million, a 31.5% increase year-over-year, while free cash flow was $144 million, up 32.1% [2][6] Revenue Composition - Subscription revenue increased by 6%, contributing to nearly all of the company's revenue, which now accounts for 97% of total revenue [5] - The annualized exit monthly recurring subscriptions reached $2.59 billion, reflecting a 7% year-over-year growth [5] AI and Product Development - The adoption of AI-focused product features significantly increased, with the AI Receptionist (AIR) tripling its customer count to 3,000 [7] - RingSense, a conversation intelligence tool, expanded its customer base from over 2,800 to over 3,600, indicating successful international expansion efforts [7] Strategic Partnerships - The company extended its partnership with NICE Ltd. and expanded its collaboration with AT&T, which will now offer RingCX and RingSense to its business clients [8] - Six global service providers are now reselling RingCX, enhancing international distribution [8] Future Guidance - Management provided updated guidance for fiscal 2025, expecting total revenue growth in the range of 4–6% and non-GAAP EPS guidance raised to $4.20–$4.32 [11] - Projected total revenue for Q3 2025 is estimated to be between $631–$639 million, with a non-GAAP operating margin of approximately 22.6% [11]

Core Insights - Vonage has been recognized as a Customers' Choice in Gartner Peer Insights for its Communications Platform as a Service (CPaaS) and named a Visionary in the 2025 Gartner Magic Quadrant for CPaaS [1][4] - The company’s innovative network-powered Communications APIs enable businesses to create personalized customer experiences, including real-time video consultations and secure online transactions [2][8] - Vonage's commitment to advanced technologies and AI-driven solutions aims to enhance customer experiences and operational efficiencies, reflecting a customer-centric approach [3][7] Recognition and Performance - Vonage achieved a 93% Willingness to Recommend score in the Gartner Peer Insights report based on 41 reviews, making it one of only two vendors to receive the Customers' Choice designation [4] - The company was recognized in all areas of the Gartner 2025 Critical Capabilities report, further validating its capabilities in the CPaaS market [4] Strategic Focus - Continued investments in innovation, particularly in AI and anti-fraud capabilities, are part of Vonage's strategy to support high-margin growth objectives [3] - The company is refining its geographic focus and prioritizing R&D investments to enhance its portfolio and create greater business impact for customers [3][9]

Industry Overview - The Internet-Software & Services industry is closely tied to the economy, with estimates declining due to tariffs, inflation, and interest rate uncertainties [1][7] - Companies are focusing on cost-saving measures, reducing operating expenses to maintain profitability despite revenue challenges [1][7] - Capital investments are being limited, with only a few companies making significant investments [1] Key Industry Themes - Companies like Criteo (CRTO) and RingCentral (RNG) are performing well by leveraging AI for revenue growth and client retention through subscription models [2][18] - The industry is characterized by a diverse range of players, leading to varied performance outcomes [2] - The Zacks Industry Rank for the Internet-Software & Services sector is 203, placing it in the bottom 17% of nearly 250 classified industries, indicating limited growth prospects [6][8] Economic Impact - The level of technology adoption by businesses is crucial for growth, with some companies advancing in AI while others lag behind [7] - Economic slowdowns lead to reduced expenditures on software and services, impacting industry performance [7] - Geopolitical tensions and tariff changes contribute to market volatility and uncertainty, complicating the operating environment [7] Financial Performance - The industry has shown strong stock market performance, returning 20.5% over the past year, outperforming the broader sector and S&P 500 [11] - The industry is currently trading at a forward 12-month P/E ratio of 24.96X, which is a 15.2% premium to the S&P 500 [14] Company Highlights Criteo S.A. (CRTO) - Criteo's AI-driven platform connects advertisers with retailers, helping to drive commerce despite macroeconomic challenges [18][20] - The company has maintained a client retention rate close to 90% and reported an 18% growth in Retail Media contributions [21][22] - Despite a projected decline in earnings due to the loss of a major customer, Criteo's existing customer spending has increased significantly [21][23] RingCentral Inc. (RNG) - RingCentral's AI-powered solutions have led to an average recurring revenue (ARR) exceeding $2.5 billion [26] - The company has successfully integrated its services into the Salesforce CRM ecosystem and secured significant customer wins [26] - RingCentral's shares have decreased by 26.5% over the past year, with analysts projecting revenue growth of 4.6% in 2025 [27]

Core Insights - Vonage has been recognized as a Leader in the IDC MarketScape: Worldwide Communications Platform as a Service (CPaaS) 2025 Vendor Assessment for the fourth time, highlighting its commitment to innovation and customer-centric solutions [1][2][3] Company Overview - Vonage is a global leader in cloud communications, helping businesses accelerate their digital transformation with a comprehensive set of engagement solutions [6][8] - The company offers a diverse CPaaS platform with a geographically balanced client base across the Americas, Europe, and Asia/Pacific regions [2] Product and Service Offerings - Vonage provides a unified API platform that includes identity, messaging, voice, video, and network APIs, enabling developers to embed these capabilities into existing products and workflows [2][7] - The introduction of Vonage Network APIs aims to simplify network complexities while enhancing flexibility, accessibility, and security for developers and enterprises [2][3] Market Position and Strategy - The recognition from IDC reflects Vonage's mission to enable businesses to create meaningful customer experiences and differentiate their brands through scalable, AI-enhanced solutions [3] - With global coverage in over 200 countries and territories, Vonage leverages its integration with Ericsson's telecommunications ecosystem to empower businesses across various industries [2][3]

Core Viewpoint - The Internet Services industry is experiencing varied impacts from macroeconomic factors such as inflation, interest rates, and supply chain issues, with a generally positive outlook in a stronger economy, but current challenges include a tariff war and declining consumer confidence [1][2][4]. Industry Overview - Internet Services companies rely on extensive software and hardware infrastructure to deliver services globally, accessible via personal connected devices [3]. - The industry operates primarily on two models: ad-based and subscription-based services, with major players including Alphabet, Baidu, and Akamai, alongside emerging companies like Dropbox and Crexendo [4]. Performance Factors - Data is crucial for success, enabling AI model development to enhance service quality and operational efficiency, with larger companies benefiting from access to larger datasets [5]. - Increased digitization and the growing presence of Gen Z consumers are driving demand for Internet services, as more devices connect to the internet [5]. - Despite high capital costs, companies are continuing infrastructure investments, with expectations of increased capital expenditures as interest rates decline [5][6]. Industry Ranking and Earnings Estimates - The Zacks Internet Services industry holds a rank of 142, placing it in the bottom 43% of Zacks-classified industries, indicating potential opportunities despite the lower ranking [7]. - The earnings estimate for 2025 has increased by 1.8% from April 2024, while the 2026 estimate has decreased by 3.6% [8]. Stock Market Performance - The industry has shown more volatility compared to the broader Technology sector and the S&P 500, with a net gain of 1.7% over the past year, lagging behind the sector's 2.8% and the S&P 500's 6.5% gains [10]. - The current valuation of the industry is attractive, trading at a forward P/E ratio of 17.52X, below its median of 20.56X and the S&P 500's 19.71X [11]. Company Highlights - **Baidu Inc.**: Focuses on AI-driven services, with significant growth in its AI Cloud and intelligent driving sectors. The company reported a 36% year-over-year increase in rides from its Apollo Go service and has 679 million monthly active users [14][17]. - **Dropbox, Inc.**: Incorporating AI to enhance customer experience, the company has seen a 16.7% increase in shares over the past year and is expected to achieve revenue growth of 2.0% in 2025 [19][21]. - **Crexendo, Inc.**: Positioned in a niche market, the company has reported a 10.2% revenue increase for 2025 and a 16.1% growth forecast for 2026, with shares up 1.6% over the past year [22][24].

Industry Overview - The Internet Services industry is influenced by macroeconomic factors such as inflation, interest rates, labor markets, and supply chain issues, with a generally positive outlook in a stronger economy [1][4] - Companies in this industry operate primarily on ad-based and ad-free models, with major players including Alphabet, Baidu, and Akamai, while emerging players include Crexendo, Upwork, and Dropbox [4] Investment Opportunities - Recommended stocks include Baidu (BIDU), Dropbox (DBX), and Crexendo (CXDO), with a focus on their investments in artificial intelligence (AI) and machine learning to enhance service offerings [2][15] - The industry is capital-intensive, requiring significant investment in infrastructure, which is negatively impacted by high interest rates; however, potential rate cuts could improve the outlook [2][7] Performance Metrics - The Zacks Internet Services industry currently holds a Zacks Industry Rank of 142, placing it in the bottom 43% of over 250 classified industries, indicating several opportunities despite the lower ranking [8] - The industry's earnings estimates for 2025 have increased by 1.8% since April 2024, while estimates for 2026 have decreased by 3.6% [9] Stock Market Performance - The industry has experienced volatility, with a net gain of 1.7% over the past year, underperforming the broader Technology sector (2.8%) and the S&P 500 (6.5%) [11] - The current forward 12-month price-to-earnings (P/E) ratio for the industry is 17.52X, which is a discount compared to its median value of 20.56X and the S&P 500's 19.71X [13] Company Highlights Baidu (BIDU) - Baidu's core business includes online marketing services and various cloud services, with a strong focus on AI, which differentiates it from smaller competitors [16][18] - The company has seen growth in its AI Cloud and intelligent driving services, with a reported 1.1 million rides provided by its Apollo Go service in Q4 2024, marking a 36% year-over-year increase [19] - Analysts expect Baidu's revenue and earnings to grow by 1.3% and -4.3% respectively in 2025, followed by 4.2% and 16.3% growth in 2026 [20] Dropbox (DBX) - Dropbox offers a content collaboration platform and has integrated AI to enhance customer experience, leading to a 20% reduction in workforce to improve efficiency [24][25] - The company beat earnings estimates by 17.7% in the last quarter, with analysts expecting revenue and earnings growth of -2.9% and 2.0% respectively in 2025 [26] Crexendo (CXDO) - Crexendo provides Unified Communications as a Service (UCaaS) and is experiencing growth opportunities in a niche market not dominated by larger players [28] - The company topped revenue and earnings estimates in the last quarter, with expected revenue and earnings growth of 10.0% and 16.1% respectively in 2026 [30]