Whether it be online shopping or social media, secular forces are propelling consumer internet businesses forward. Luckily for them, the market seems to believe there is a long runway for growth as the industry has recorded a 29.6% gain over the past six months, beating the S&P 500 by 13.7 percentage points.<\/p>\n
Nevertheless, investors should tread carefully as many internet companies pursue winner-take-all strategies, meaning losses can be hefty if their playbooks don\u2019t pan out. On that note, here are three internet stocks we\u2019re steering clear of.<\/p>\n
Market Cap: $41.5 billion<\/p>\n
Originally known as the first online auction site, eBay (NASDAQ:EBAY) is one of the world\u2019s largest online marketplaces.<\/p>\n
Why Does EBAY Give Us Pause?<\/p>\n
Increasing competition is redirecting attention to other platforms as it failed to grow its active buyers over the last two years<\/p>\n
Underwhelming performance in both user spending and platform engagement suggests its platform is becoming less effective<\/p>\n
Costs have risen faster than its revenue over the last few years, causing its EBITDA margin to decline by 4.3 percentage points<\/p>\n
At $90.80 per share, eBay trades at 12.7x forward EV\/EBITDA. To fully understand why you should be careful with EBAY, check out our full research report (it\u2019s free)<\/a>.<\/p>\n Market Cap: $43.13 billion<\/p>\n Best known for its Madden NFL and FIFA sports franchises, Electronic Arts (NASDAQ:EA) is one of the world\u2019s largest video game publishers.<\/p>\n Why Do We Think Twice About EA?<\/p>\n Lackluster 1.2% annual revenue growth over the last three years indicates the company is losing ground to competitors<\/p>\n Anticipated sales growth of 2.2% for the next year implies demand will be shaky<\/p>\n Day-to-day expenses have swelled relative to revenue over the last few years as its EBITDA margin fell by 6.1 percentage points<\/p>\n Electronic Arts is trading at $172 per share, or 14.4x forward EV\/EBITDA. Check out our free in-depth research report to learn more about why EA doesn\u2019t pass our bar<\/a>.<\/p>\n Market Cap: $805.5 million<\/p>\n Helping residents figure out what’s happening on their block in real time, Nextdoor (NYSE:KIND) is a social network that connects neighbors with each other and with local businesses.<\/p>\n Why Are We Wary of KIND?<\/p>\n Modest 6.5% annual growth in weekly active users over the last two years indicates potential challenges in customer acquisition and retention<\/p>\n Poor expense management has led to EBITDA margin losses<\/p>\n Cash burn makes us question whether it can achieve sustainable long-term growth<\/p>\n