The commercial Internet is about 20 years old. But it has undergone some big changes lately, as smartphones become ubiquitous.
Take a look at a report from Nielsen. It shows that the average time spent on mobile is higher than from desktop computers (at least in the U.S., U.K. and Italy). So, what’s the takeaway for investors?
Well, we have already started to see the impact, with Internet stocks delivering scorching returns since their IPOs. Here are some of the companies at the forefront of mobile:
But not every company has found success. Some Internet stocks have fumbled the opportunity. For example, Zynga’s (ZNGA) stock is 44% down from its IPO in 2011. Or look at Angie’s List (ANGI). Its stock is down 24% over the past 12 months.
But nothing demonstrates the importance of mobile more than Facebook’s $19 billion deal for WhatsApp. When it comes to core services like messaging, the valuations can reach staggering levels. That’s because Internet stocks know that mobile is such a key part of their future.
So, where can investors find the next big plays? A good option is the IPO market. And the good news is that there will likely be a flurry of deals. Here’s a sample of Internet stocks investors should look out for:
Kakao is the WhatsApp of Korea. The app allows for texts as well as phone calls.
The user base is at 133 million users, which is well above the 50 million population of Korea. Kakao has developed a strong footprint in countries like Malaysia, the Philippines and Indonesia, which has driven up its user base.
The official financials are not known, but it looks like Kakao hit profitability in 2012. That should put it in league with the other Internet stocks we’ve mentioned.
Weibo, which operates a short-messaging service like Twitter’s, is a division of Sina (SINA). Although, it has raised outside capital, such as $586 million from Alibaba.
Weibo has amassed a base of about 61 million active daily users. And so far, the monetization has been strong. During the fourth quarter, revenues came to $56 million, up 163% on a year-over-year basis, and the operating profit hit $3 million.
A deal is expected to be valued at about $8 billion.
GrubHub has been around since the late 1990s — but mobile has been the key to reviving its fortunes. Grubhub operates a platform that helps independent restaurants get their customers to place takeout orders with their smartphones.
The market opportunity is massive, with total orders in the U.S. at a $67 billion. If anything, Grubhub has only scratched the surface. Last year, the company booked $137.1 million in revenues (up 67%), and adjusted EBITDA came to $38.1 million. In Q4, mobile orders went from 20% to 43% of total orders (on a year-over-year basis).
GrubHub is one of the oldest Internet stock out there, but its prospects are only beginning to heat up.
King Digital Entertainment
King Digital Entertainment is the developer of the wildly popular mobile game Candy Crush Saga. But it also has other top titles like Pet Rescue Saga, Farm Heroes Saga, Papa Pear Saga and Bubble Witch Saga. The dominance of those games should help make King one of the top Internet stocks.
King provides its games for free and than then collects money via in-app purchases, like virtual items. No doubt, it has worked extremely well. Last year, revenues surged from $164 million to a stunning $1.88 billion. There was even a net profit of $568 million.
But again, this is only a sampling of the Internet stocks we’re expecting to go public. Other possibilities include Spotify, Airbnb and Dropbox. In other words, there will be no shortage of options for investors looking to capitalize on the mobile trend with new Internet stocks.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.