9 Best Internet Stocks to Buy Now That AOL Is Being Acquired by Verizon

NEW YORK (TheStreet) -- With Verizon (VZ) scooping up AOL (AOL) in a deal worth $4.4 billion, are there other Internet companies that investors should be placing their bets on?

The $30-billion internet software and services industry is highly competitive with companies like Google (GOOGL), eBay (EBAY) and Yahoo! (YHOO) all formidable players. But the industry is growing.

Consumers are becoming more comfortable with using the Internet for purchasing goods or services. "Looking forward, companies' success will depend on their ability to adopt rapidly evolving technologies, alter services to meet industry standards, and improve the performance and reliability of services," according to TheStreet Ratings. "Investment in research and development will continue to be an integral part of company and industry success."

Still, the industry is rife with challenges. In the advertising segment, competition is particularly intense, "as a result of consolidation and low entry barriers, which has caused price reductions for advertising space, implying a drop in margins," TheStreet Ratings said. Another challenge the industry faces is the increasing uncertainty of security, particularly of personal information as hacking becomes more prevalent.

Incidentally, TheStreet Ratings had a "buy" rating on AOL in its latest report, dated May 10 -- just two days before Verizon announced it was acquiring the company. Here are nine other Internet companies you should buy now.

The stocks on this list are all large-cap companies in the "Internet Software & Services" industry, rated "buy" with a B or better rating. Find out which stocks to buy and when you're done, be sure to check out which broadcasting companies to add to your portfolio.

TheStreet Ratings, TheStreet's proprietary ratings tool, projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Based on 32 major data points, TheStreet Ratings uses a quantitative approach to rating over 4,300 stocks to predict return potential for the next year. The model is both objective, using elements such as volatility of past operating revenues, financial strength, and company cash flows, and subjective, including expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings.

Buying an S&P 500 stock that TheStreet Ratings rated a "buy" yielded a 16.56% return in 2014 beating the S&P 500 Total Return Index by 304 basis points. Buying a Russell 2000 stock that TheStreet Ratings rated a "buy" yielded a 9.5% return in 2014, beating the Russell 2000 index, including dividends reinvested, by 460 basis points last year. Note: Year-to-date returns are based on May 12, 2015 closing prices.

YHOO Chart YHOO data by YCharts

9. Yahoo! (YHOO)
Market Cap: $41 billion
Rating: Buy, B
Year-to-date return: -13.2%

Yahoo! Inc. provides search and display advertising services on Yahoo properties and affiliate sites worldwide.

"We rate YAHOO INC (YHOO) a BUY. This is driven by some important positives, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, notable return on equity, reasonable valuation levels and solid stock price performance. We feel its strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • YHOO's revenue growth has slightly outpaced the industry average of 5.9%. Since the same quarter one year prior, revenues slightly increased by 8.2%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Although YHOO's debt-to-equity ratio of 0.04 is very low, it is currently higher than that of the industry average. Along with this, the company maintains a quick ratio of 4.44, which clearly demonstrates the ability to cover short-term cash needs.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Internet Software & Services industry and the overall market, YAHOO INC's return on equity exceeds that of both the industry average and the S&P 500.
  • Compared to its closing price of one year ago, YHOO's share price has jumped by 28.76%, exceeding the performance of the broader market during that same time frame. Turning to the future, naturally, any stock can fall in a major bear market. However, in almost any other environment, the stock should continue to move higher despite the fact that it has already enjoyed nice gains in the past year.

 

 

QIHU Chart QIHU data by YCharts

8. Qihoo 360 Technology Co. (QIHU) (ADR)
Market Cap: $7.2 billion
Rating: Buy, B
Year-to-date return: -1%

Qihoo 360 Technology Co. Ltd., through its subsidiaries, provides Internet services in the People's Republic of China. The company operates through Internet Services and Others segments.

"We rate QIHOO 360 TECHNOLGY CO -ADR (QIHU) a BUY. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its robust revenue growth, notable return on equity, impressive record of earnings per share growth, compelling growth in net income and expanding profit margins. We feel its strengths outweigh the fact that the company has had lackluster performance in the stock itself."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • QIHU's very impressive revenue growth greatly exceeded the industry average of 5.9%. Since the same quarter one year prior, revenues leaped by 94.6%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • QIHOO 360 TECHNOLGY CO -ADR reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, QIHOO 360 TECHNOLGY CO -ADR increased its bottom line by earning $1.71 versus $0.76 in the prior year. This year, the market expects an improvement in earnings ($3.48 versus $1.71).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Internet Software & Services industry. The net income increased by 361.4% when compared to the same quarter one year prior, rising from $16.65 million to $76.82 million.
  • Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Internet Software & Services industry and the overall market, QIHOO 360 TECHNOLGY CO -ADR's return on equity exceeds that of both the industry average and the S&P 500.
  • The gross profit margin for QIHOO 360 TECHNOLGY CO -ADR is currently very high, coming in at 81.90%. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 17.81% trails the industry average.

 

 

GOOGL Chart GOOGL data by YCharts

7. Google (GOOGL)
Market Cap: $371 billion
Rating: Buy, B
Year-to-date return: 1.5%

Google Inc., a technology company, builds products and provides services to organize the information.

"We rate GOOGLE INC (GOOGL) a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, reasonable valuation levels, expanding profit margins and good cash flow from operations. We feel its strengths outweigh the fact that the company has had somewhat disappointing return on equity."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • GOOGL's revenue growth has slightly outpaced the industry average of 5.9%. Since the same quarter one year prior, revenues rose by 11.9%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Although GOOGL's debt-to-equity ratio of 0.05 is very low, it is currently higher than that of the industry average. Along with this, the company maintains a quick ratio of 5.28, which clearly demonstrates the ability to cover short-term cash needs.
  • The gross profit margin for GOOGLE INC is rather high; currently it is at 69.99%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 20.77% is above that of the industry average.
  • Net operating cash flow has significantly increased by 50.69% to $6,617.00 million when compared to the same quarter last year. In addition, GOOGLE INC has also modestly surpassed the industry average cash flow growth rate of 41.59%.

 

 

EBAY Chart EBAY data by YCharts

6. EBay (EBAY)
Market Cap: $71 billion
Rating: Buy, B
Year-to-date return: 3.9%

EBay Inc. operates as a technology company that enables commerce and payments on behalf of users, merchants, retailers, and brands of various sizes in the United States and internationally. It operates in three segments: Marketplaces, Payments, and Enterprise.

"We rate EBAY INC (EBAY) a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its solid stock price performance, compelling growth in net income, revenue growth, notable return on equity and reasonable valuation levels. We feel its strengths outweigh the fact that the company shows weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Compared to where it was a year ago today, the stock is now trading at a higher level, reflecting both the market's overall trend during that period and the fact that the company's earnings growth has been robust. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Internet Software & Services industry. The net income increased by 126.9% when compared to the same quarter one year prior, rising from -$2,326.00 million to $626.00 million.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 5.9%. Since the same quarter one year prior, revenues slightly increased by 4.4%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Internet Software & Services industry and the overall market, EBAY INC's return on equity exceeds that of both the industry average and the S&P 500.

 

CSGP Chart CSGP data by YCharts

5. CoStar Group Inc. (CSGP)
Market Cap: $6.6 billion
Rating: Buy, B
Year-to-date return: 12.2%

CoStar Group, Inc. provides information, analytics, and online marketplaces services to the commercial real estate industry in the United States, Canada, the United Kingdom, and France.

"We rate COSTAR GROUP INC (CSGP) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures, expanding profit margins and solid stock price performance. We feel its strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 5.9%. Since the same quarter one year prior, revenues rose by 33.5%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Although CSGP's debt-to-equity ratio of 0.25 is very low, it is currently higher than that of the industry average. Along with this, the company maintains a quick ratio of 4.33, which clearly demonstrates the ability to cover short-term cash needs.
  • The gross profit margin for COSTAR GROUP INC is currently very high, coming in at 78.16%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of -3.85% is in-line with the industry average.
  • Compared to its closing price of one year ago, CSGP's share price has jumped by 28.31%, exceeding the performance of the broader market during that same time frame. We feel that the stock's sharp appreciation over the last year has driven it to a price level which is now somewhat expensive compared to the rest of its industry. The other strengths this company shows, however, justify the higher price levels.
  • COSTAR GROUP INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, COSTAR GROUP INC increased its bottom line by earning $1.45 versus $1.04 in the prior year. This year, the market expects an improvement in earnings ($2.07 versus $1.45).

 

 

BIDU Chart BIDU data by YCharts

4. Baidu Inc. (BIDU)
Market Cap: $66.7 billion
Rating: Buy, B
Year-to-date return: -16.7%

Baidu, Inc. provides Internet search services in China and internationally.

"We rate BAIDU INC (BIDU) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures, solid stock price performance, expanding profit margins and notable return on equity. We feel its strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 5.9%. Since the same quarter one year prior, revenues rose by 34.4%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Despite currently having a low debt-to-equity ratio of 0.47, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 3.01 is very high and demonstrates very strong liquidity.
  • Compared to its closing price of one year ago, BIDU's share price has jumped by 28.00%, exceeding the performance of the broader market during that same time frame. We feel that the stock's sharp appreciation over the last year has driven it to a price level which is now somewhat expensive compared to the rest of its industry. The other strengths this company shows, however, justify the higher price levels.
  • BAIDU INC's earnings per share declined by 6.0% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, BAIDU INC increased its bottom line by earning $6.01 versus $4.96 in the prior year. This year, the market expects an improvement in earnings ($42.39 versus $6.01).
  • The gross profit margin for BAIDU INC is rather high; currently it is at 62.72%. Regardless of BIDU's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 19.24% trails the industry average.

 

IACI Chart IACI data by YCharts

3. IAC/InterActiveCorp (IACI)
Market Cap: $6 billion
Rating: Buy, B+
Year-to-date return: 20%

IAC/InterActiveCorp operates as a media and Internet company in the United States and internationally. It operates through four segments: The Match Group, Search & Applications, Media, and eCommerce.

"We rate IAC/INTERACTIVECORP (IACI) a BUY. This is driven by some important positives, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, reasonable valuation levels, expanding profit margins, largely solid financial position with reasonable debt levels by most measures and solid stock price performance. We feel its strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Despite its growing revenue, the company underperformed as compared with the industry average of 5.9%. Since the same quarter one year prior, revenues slightly increased by 4.3%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • The gross profit margin for IAC/INTERACTIVECORP is currently very high, coming in at 75.20%. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, IACI's net profit margin of 3.41% significantly trails the industry average.
  • IACI's debt-to-equity ratio of 0.62 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Despite the fact that IACI's debt-to-equity ratio is mixed in its results, the company's quick ratio of 1.77 is high and demonstrates strong liquidity.
  • Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period, despite the company's weak earnings results. Looking ahead, unless broad bear market conditions prevail, we still see more upside potential for this stock, despite the fact that it has already risen over the past year.

 

AKAM Chart AKAM data by YCharts

2. Akami Technologies (AKAM)
Market Cap: $13.7 billion
Rating: Buy, A-
Year-to-date return: 20.7%

Akamai Technologies, Inc. provides cloud services for delivering, optimizing, and securing online content and business applications in the United States and internationally.

"We rate AKAMAI TECHNOLOGIES INC (AKAM) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures, growth in earnings per share, increase in net income and expanding profit margins. Although no company is perfect, currently we do not see any significant weaknesses which are likely to detract from the generally positive outlook."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 5.9%. Since the same quarter one year prior, revenues rose by 16.1%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • Although AKAM's debt-to-equity ratio of 0.20 is very low, it is currently higher than that of the industry average. Along with this, the company maintains a quick ratio of 3.97, which clearly demonstrates the ability to cover short-term cash needs.
  • AKAMAI TECHNOLOGIES INC has improved earnings per share by 7.5% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, AKAMAI TECHNOLOGIES INC increased its bottom line by earning $1.84 versus $1.61 in the prior year. This year, the market expects an improvement in earnings ($2.52 versus $1.84).
  • The company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the Internet Software & Services industry average. The net income increased by 6.8% when compared to the same quarter one year prior, going from $72.80 million to $77.75 million.
  • The gross profit margin for AKAMAI TECHNOLOGIES INC is currently very high, coming in at 79.94%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 14.76% trails the industry average.

 

NTES Chart NTES data by YCharts

1. NetEase Inc. (NTES)
Market Cap: $16.8 billion
Rating: Buy, A
Year-to-date return: 28.9%

NetEase, Inc., through its subsidiaries, operates an interactive online community in the People's Republic of China. The company operates in three segments: Online Game Services; Advertising Services; and E-mail, E-commerce and Others.

"We rate NETEASE INC (NTES) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures, solid stock price performance, attractive valuation levels and expanding profit margins. We feel its strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 5.9%. Since the same quarter one year prior, revenues rose by 34.2%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Although NTES's debt-to-equity ratio of 0.09 is very low, it is currently higher than that of the industry average. Along with this, the company maintains a quick ratio of 3.86, which clearly demonstrates the ability to cover short-term cash needs.
  • Compared to its closing price of one year ago, NTES's share price has jumped by 90.09%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, although almost any stock can fall in a broad market decline, NTES should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • The gross profit margin for NETEASE INC is currently very high, coming in at 73.65%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 36.71% significantly outperformed against the industry average.

 

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