2 Internet Commerce Stocks To Consider Now, 1 To Avoid

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Submitted by Morgan Smith as part of our contributors program .

Internet commerce in the United States is likely to be worth about $220 billion this year. Along with that, the internet's impact on print media, recorded music, and various other avenues has been undeniable. I wanted to take a look at some leading companies whose business is wholly or partly internet dependent. Of course, that might mean anything, so let's just say I am looking at some really big companies whose have had recent developments of interest to me.

Apple ( AAPL ) is the west's largest company by market capitalization, with a current value of about $620 billion. While impressive, the stock is down about six percent from its high point late in September, 2012.

The Apple world is noting the one year passing since the death of its former visionary CEO, Stephen Jobs. Since then, the big new was its selling 5 million units of the highly profitable iPhone 5 in the first 48 hours after it went on sale. It also sold some 17 million of its iPad units in the second quarter of 2012, up nearly double from the same period of 2011. Its next big announcement will be its iPad mini, which I expect to be another huge hit.

But there are clear signs that Apple's momentum is slowing. First, as the stock price is up 68% this year, it is silly to believe that is sustainable. Second, as always, Apple is not infallible. Its dropping of Google ( GOOG ) maps from its iPhone 5 operating system was a public relations mess . Competitors, chiefly Samsung, have pretty well equaled the innovations that have made the iPhone line special. But just because momentum is slowing hardly means it is stopping. Second quarter revenues and earnings were up 23% and 21%, respectively. Yet even if the growth does rate does fall some, the stock is trading at a price to earnings ratio of a little over 15, so the PEG suggests an undervalued situation. From my perspective, Apple is cheaper today than it was a few weeks ago, and no big cap growth portfolio can call itself complete without Apple as a holding.

Zynga ( ZNGA ) is the gaming sibling of Facebook ( FB ) . Zynga stock went public a couple months before Facebook, and saw its share price rise by some 60% up to nearly $16 per share before falling back most recently to about $2.50 per share. What has recently driven this decline is that Zynga management's advice that its already lowered forecast for third quarter 2012, full year 2012 revenue, and 2012 earnings, would not be met. Not only is the company experiencing declining use of its games such as FarmVille and CityVille, it also is not seeing expectations met on its $182 million March acquisition of OMGPOP . It plans to write off about $90 million of its investment in this quarter, leading to a loss for the quarter. Management lowered 2012 EBIT projections down by about 20%, to from $147 million and $162 million. Previous estimates had been from $180 million to $250 million.

As it is now, Zynga is scarcely trading over the sum of its cash and real estate, a remarkable achievement of market disrespect for a tech company. I don't see any reason why one would invest in this company.

Zynga is to a large extent dependent upon Facebook for customers. Facebook of course has had its own issues since going public early in 2012. But the good news abides as long as you were not one of the many early investors in Facebook's public ownership. The stock is trading now at about half the price some buyers paid on that first day of trading. But now, with the "froth" blown off the stock price, there is a reasonably priced company to discover. Facebook now has over one billion users, and now just needs to more smoothly monetize all those users. It is not hard to see earnings moving ahead at a rapid annual rate from the low point they are today. I believe Facebook is a compelling buy today, given it is the same company that so many clamored for at twice today's price a few months back.

Groupon ( GRPN ) is another company whose shareholders have been taking it on the chin. Since originally trading at over $25 per share when it went public in November, 2011, it went to as low as about $4 per share in early September and has rebounded slightly since, to about $5.00 per share.

The story with Groupon is quite familiar. The company when privately held grew at an astonishing rate. Then, upon going public to "cash out" the idea of actually running the business seemed so much more difficult than building it. As a result of rule changes many upper level along with revenue generating lower level employees have left Groupon in recent months.

Groupon has made moves to expand beyond its core one day coupon model. "Groupon Goods" is already available in its markets, and the company has made inroads to move into payment processing and restaurant reservations as well. As with Facebook, with the excesses already squeezed out of the stock price, I like Groupon at these levels. Analysts have the company turning small profits this year and not quite as small next year. Any sort of sustained profitability will be a good sign for the stabilization of this company. This would be a top choice for speculative investors.

All these companies are products in whole or part of the internet age. If your young company wants to take advantage of the quickly growing internet economy, an attractive web site is essential. For that, I suggest you consult a company such as Template Monster. At its website , anyone can create the website of their dreams by choosing the business type, color pattern, icons, and all other details for a very modest price.

Brick and mortar stores have seen their days. With very rare exceptions, there will be little growth from that sector. But internet commerce will undoubtedly grow at double digit rates for years to come, and it is far from too late to hop aboard.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: AAPL , FB , GOOG , GRPN , ZNGA

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