2 internet stocks for long-term investors and 1 we ignore

Consumer internet businesses are redefining how people engage with the world by giving them instant connectivity and convenience. Despite the tailwinds, their demand largely hinges on consumer spending habits, which investors believe are weakening. As a result, the industry has pulled back by 3.1% over the past six months. This performance is a noticeable divergence from the S&P 500’s 8.1% return.

Only some companies are subject to these dynamics, however, and a handful of high-quality businesses can deliver earnings growth in any environment. Keeping that in mind, here are two internet stocks we think can generate sustainable market-beating returns and one best left ignored.

One consumer internet stock to sell:

Cars.com (CARS)

Market Cap: $550.9 million

Originally started as a joint venture between several media companies including The Washington Post and The New York Times, Cars.com (NYSE:CARS) is a digital marketplace that connects new and used car buyers and sellers.

Why Does CARS Give Us Pause?

1. Increasing competition is redirecting attention to other platforms as it failed to grow its dealer customers over the last two years

2. Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 1.4%

3. Earnings per share have dipped by 15.6% annually over the past three years, which is concerning because stock prices follow EPS over the long term

At $10.28 per share, Cars.com trades at 4.7x forward EV/EBITDA. If you’re considering CARS for your portfolio, see our FREE research report to learn more.

Two consumer internet stocks to buy:

DoorDash (DASH)

Market Cap: $79.92 billion

Founded by Stanford students with the intent to build “the local, on-demand FedEx”, DoorDash (NASDAQ:DASH) operates an on-demand food delivery platform.

What Makes DASH Stand Out?

1. Orders have grown by 23.5% annually, allowing for more profitable cross-selling opportunities if it can build complementary products and features

2. Highly efficient business model is illustrated by its impressive 20% EBITDA margin, and its rise over the last few years was fueled by some leverage on its fixed costs

3. Performance over the past three years shows its incremental sales were extremely profitable, as its annual earnings per share growth of 98.3% outpaced its revenue gains

DoorDash’s stock price of $184.86 implies a valuation ratio of 19.1x forward EV/EBITDA. Is now the time to initiate a position? Find out in our full research report, it’s free.

Sea (SE)

Market Cap: $47.74 billion

Founded in 2009 and a publicly traded company since 2017, Sea (NYSE:SE) started as a gaming platform and has since expanded to offer a variety of services such as e-commerce, digital payments, and financial services across Southeast Asia.