As global internet usage grows, boosted by the declining digital divide in emerging markets, it’s an interesting time to look at some established companies in the industry. Solid growth prospects and ever-increasing sources of income make Yahoo! Inc. (NASDAQ:YHOO), MercadoLibre Inc (NASDAQ:MELI), and Baidu.com, Inc. (ADR) (NASDAQ:BIDU) three interesting investment options. Lets take a closer look at them:
It’s all about focus
Yahoo! Inc. (NASDAQ:YHOO) is one of the main providers of web-based services such as email, search, news, and social networking, and is a big player in the online advertising market. Currently, Yahoo.com ranks as the world’s fourth most-visited website, according to Alexa. Trading at $27, or 7.9 times its earnings, a 74% discount to the industry average, is Yahoo! a buy? I’d say so.
With good fourth quarter results, experiencing double-digit increases in EPS, excellent returns, and some solid growth prospects, this is a stock to consider adding to your portfolio.
Not-so-‘Libre’
Mercadolibre Inc (NASDAQ:MELI) is the main online trading platform in Latin America. It’s a kind of south-of-the-border eBay Inc (NASDAQ:EBAY), with whom it has more in common than just a business model. eBay is actually an important MercadoLibre shareholder, while MercadoLibre owns eBay’s former Brazilian subsidiary.
The share valuation does not appear particularly attractive. Trading at $108, or 50 times its earnings, Mercadolibre Inc (NASDAQ:MELI) almost doubles the industry average and exhibits a dividend yield of just 0.5%. Yet, with revenue having quadrupled over the last five years, and promising growth estimates for those to come, investing in the company could sound tempting. Moreover, as the No. 1 online marketplace in the region, the company is extremely well-positioned to profit from the inevitable increase of online commerce in Latin America, a high growth industry that’s still quite infant in the region.
Although Mercadolibre Inc (NASDAQ:MELI)’s growth may look appealing to investors, they should be aware of risks associated with currency volatility, political instabilities, and capital controls present in the region, mainly in Argentina and Venezuela, two markets that the company is particularly dependent upon. After all, contrary to its name, the market where it operates is not that libre (free). In sum, this is a stock more suited to those investors who are not risk-averse.
Fancy some Chinese?
Baidu.com, Inc. (ADR) (NASDAQ:BIDU) is China’s dominant search engine, with over 80% of the market share, and holds second place as the world’s largest search engine after Google. Despite having failed to meet analyst estimates in its latest quarterly report, Baidu continues to offer strong revenue and earnings growth rates that exceed its international competitor.
Trading slightly above the $100 mark at $105, or 20 times its earnings, and at a 31% discount to the industry average, it appears to be an interesting time to consider buying.
Despite increasing competition from rising Chinese search engines, specially Qihoo, Baidu.com, Inc. (ADR) (NASDAQ:BIDU)’s market share remains unrivaled. With an estimate of more than 500 million users, China constitutes the largest internet market in the world and has solid growth prospects. According to its Ministry of Industry and Information Technology (MIIT), its user-base should hit 800 million by 2015.
As the country’s major search engine, Baidu.com, Inc. (ADR) (NASDAQ:BIDU) will benefit from China’s increasing internet use, mainly as advertisers shell more cash into paid searching (Baidu’s main source of revenue) and the demand for paid search marketing expands to small and medium-sized businesses. In relation to the mobile search market, although Baidu currently has a market share of 37.5%, the company is determined to increase that figure. It recently signed a deal with Apple Inc. (NASDAQ:AAPL) for expanding into iOS-powered devices, and is in the process of buying 91 Wireless, the country’s most popular third-party app store, in what will be the China’s biggest internet deal.
Bottom line
Investing in the internet industry is not for the faint of heart. Although solid growth prospects may look appealing to investors, diverse factors should be taken into account for those looking for long-term investments. Here, great returns come with great volatility. My recommendation? Stay out of Mercadolibre Inc (NASDAQ:MELI) unless you can handle the pressure. Yahoo! Inc. (NASDAQ:YHOO) and Baidu.com, Inc. (ADR) (NASDAQ:BIDU), on the other hand, look quite tempting.
Victor Selva has no position in any stocks mentioned. The Motley Fool recommends Baidu, Google, and MercadoLibre. The Motley Fool owns shares of Baidu, Google, and MercadoLibre.
The article 3 Internet Stocks Worth Searching originally appeared on Fool.com.
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