2 Top-Ranked Stocks to Buy From a Challenging Internet Industry

The Zacks Internet - Content industry faces macroeconomic headwinds like inflation and higher interest rates, impacting ad spending, though demand for digital offerings and AI deployment offer some offset. Despite a dull industry outlook reflected in a Zacks Industry Rank in the bottom 17%, the industry has outperformed the S&P 500 and the broader technology sector over the past year, with a trailing 12-month price-to-sales ratio of 6.92x. Zacks highlights RELX and DHI Group as potential buys, noting RELX's strategic acquisitions and AI-driven growth, and DHI Group's improved offerings and AI-related demand, with both companies seeing positive earnings estimate revisions for 2025.

Analysis

The Zacks Internet - Content industry faces significant headwinds from challenging global macroeconomic conditions, including persistent inflation and higher interest rates, which are negatively affecting advertising spending—a primary revenue source for industry participants. Geopolitical instability and increasing regulatory pressures, notably from China and the European Union's GDPR and Digital Markets Act, further compound the challenges. Despite these adversities, the industry benefits from solid demand for digital offerings, the increasing importance of video content, cloud-based applications, and the proliferation of AI and Generative AI. This mixed environment is reflected in the industry's Zacks Industry Rank of #203, placing it in the bottom 17% of over 250 industries, and a 3.4% decline in the consensus earnings estimate for 2025 since May 31, 2024. However, the industry has demonstrated notable market resilience, outperforming both the S&P 500 and the broader Zacks Computer and Technology sector over the past year with a return of 20.9%. Its current trailing 12-month price-to-sales ratio is 6.92X, at the high end of its five-year range and above the S&P 500's 5.29X. Within this sector, RELX (RELX) and DHI Group (DHX) are highlighted as Zacks Rank #2 (Buy) stocks. RELX is benefiting from strong demand in financial crime compliance and digital fraud solutions, its Gen AI legal assistant Protégé, and a strategy of frequent acquisitions, including five small companies for £195 million in fourth-quarter 2024 and IDVerse in December 2024; its 2025 earnings consensus has risen to $1.72 per share, and its stock has appreciated 21.1% year-to-date. DHI Group is leveraging improved offerings, cost savings, and the strong performance of its ClearanceJobs unit, with the growing AI-driven demand for tech professionals also providing a tailwind; its 2025 earnings consensus increased to 15 cents per share, and its shares are up 12.5% year-to-date.

Key Decisions for Investors

• Investors should consider a selective approach, focusing on fundamentally strong companies within the Internet - Content sector like RELX and DHI Group, which demonstrate robust AI integration and positive earnings estimate revisions, despite broader industry challenges.
• It is crucial to closely monitor macroeconomic indicators, particularly inflation trends and interest rate policies, as these directly influence advertising expenditures and, consequently, the financial performance of companies in this industry.
• Given the industry's recent market outperformance and a valuation at 6.92x price-to-sales (which is near its five-year high), investors should carefully evaluate risk-reward profiles for new or existing positions, while also staying informed about potential impacts from evolving regulatory frameworks in key international markets such as the EU and China.