Whether it be online shopping or social media, secular forces are propelling consumer internet businesses forward. These themes have enabled rapid growth for the industry, which has posted a 36.9% gain over the past six months compared to 26% for the S&P 500.

However, long-term winners that can stand the test of time are rare in this space because competition is fierce with many well-capitalized companies. Taking that into account, here are two internet stocks we think can generate sustainable market-beating returns and one that may face trouble.

Market Cap: $15.81 billion

Founded by Ryan Cohen, who later became known for his involvement in GameStop, Chewy (NYSE:CHWY) is an online retailer specializing in pet food, supplies, and healthcare services.

Why Does CHWY Worry Us?

  1. Large revenue base makes it harder to increase sales quickly, and its annual revenue growth of 9% over the last three years was below our standards for the consumer internet sector

  2. Estimated sales growth of 5.9% for the next 12 months implies demand will slow from its three-year trend

  3. Gross margin of 29.2% reflects its high servicing costs

Chewy is trading at $37.57 per share, or 20.8x forward EV/EBITDA. Read our free research report to see why you should think twice about including CHWY in your portfolio, it’s free for active Edge members.

Market Cap: $7.78 billion

Originally started as a dial-up service before widespread internet adoption, Match (NASDAQ:MTCH) was an early innovator in online dating and today has a portfolio of apps including Tinder, Hinge, Archer, and OkCupid.

Why Are We Positive On MTCH?

  1. Customer spending is rising as the company has focused on monetization over the last two years, leading to 8.9% annual growth in its average revenue per user

  2. Healthy EBITDA margin of 36.3% shows it’s a well-run company with efficient processes

  3. MTCH is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders, and its growing cash flow gives it even more resources to deploy

At $32.23 per share, Match Group trades at 6.5x forward EV/EBITDA. Is now a good time to buy? Find out in our full research report, it’s free for active Edge members.

Market Cap: $502.9 billion

Launched by Reed Hastings as a DVD mail rental company until its famous pivot to streaming in 2007, Netflix (NASDAQ: NFLX) is a pioneering streaming content platform.

Why Are We Bullish on NFLX?

  1. Global Streaming Paid Memberships are rising, meaning the company can increase revenue without incurring additional customer acquisition costs if it can cross-sell additional products and features

  2. Share buybacks catapulted its annual earnings per share growth to 27.8%, which outperformed its revenue gains over the last three years

  3. Free cash flow margin increased by 19.9 percentage points over the last few years, giving the company more capital to invest or return to shareholders