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 12.4% gain over the past six months, beating the S&P 500 by 3.5 percentage points.

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. Keeping that in mind, here is one internet stock boasting a durable advantage and two best left ignored.

Market Cap: $11.81 billion

Founded by Stanford University students Evan Spiegel, Reggie Brown, and Bobby Murphy, and originally called Picaboo, Snapchat (NYSE: SNAP) is an image centric social media network.

Why Does SNAP Worry Us?

  1. Sales trends were unexciting over the last three years as its 7.5% annual growth was below the typical consumer internet company

  2. Focus on expanding its platform has led to weaker growth in its average revenue per user

  3. Issuance of new shares over the last three years caused its earnings per share to fall by 2.3% annually while its revenue grew

Snap’s stock price of $7 implies a valuation ratio of 18.8x forward EV/EBITDA. Dive into our free research report to see why there are better opportunities than SNAP.

Market Cap: $16.69 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 Give Us Pause?

  1. Scale is a double-edged sword because it limits the company’s growth potential compared to its smaller competitors, as reflected in its below-average annual revenue increases of 9.3% for the last three years

  2. Estimated sales growth of 5.1% for the next 12 months implies demand will slow from its three-year trend

  3. Gross margin of 29% reflects its high servicing costs

Chewy is trading at $40.53 per share, or 23x forward EV/EBITDA. To fully understand why you should be careful with CHWY, check out our full research report (it’s free).

Market Cap: $79.5 billion

Founded by Brian Chesky and Joe Gebbia in their San Francisco apartment, Airbnb (NASDAQ:ABNB) is the world’s largest online marketplace for lodging, primarily homestays.

Why Is ABNB a Good Business?

  1. Nights and Experiences Booked have grown by 10% annually, allowing for more profitable cross-selling opportunities if it can build complementary products and features

  2. Share buybacks catapulted its annual earnings per share growth to 28.4%, which outperformed its revenue gains over the last three years

  3. ABNB is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders

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