By breaking down physical barriers, consumer internet businesses are reshaping how people shop, connect, learn, and play. These themes have enabled rapid growth for the industry, which has posted a 45.7% gain over the past six months compared to 16.8% 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. With that said, here are two internet stocks boasting durable advantages and one that may face trouble.

One Consumer Internet Stock to Sell:

Take-Two (TTWO)

Market Cap: $32.23 billion

Best known for its Grand Theft Auto and NBA 2K franchises, Take Two (NASDAQ:TTWO) is one of the world’s largest video game publishers.

Why Are We Cautious About TTWO?

1. EBITDA margin declined by 13.2 percentage points over the last four years as it scaled
2. Performance over the past three years shows its incremental sales were much less profitable, as its earnings per share fell by 84.9% annually
3. Short cash runway increases the probability of a capital raise that dilutes existing shareholders

At $185 per share, Take-Two trades at 32.7x forward EV-to-EBITDA. To fully understand why you should be careful with TTWO, check out our full research report (it’s free).

Two Consumer Internet Stocks to Watch:

Roblox (RBLX)

Market Cap: $49.53 billion

Best known for its wide assortment of user-generated content, Roblox (NYSE:RBLX) is an online gaming platform and game creation system.

Why Does RBLX Catch Our Eye?

1. Daily Active Users have grown by 21.6% annually, allowing for more profitable cross-selling opportunities if it can build complementary products and features
2. Revenue outlook for the upcoming 12 months is outstanding and shows it’s on track to gain market share
3. Marketing expenses show it saves money by shying from over-the-top promotions to win new users

Roblox is trading at $75.18 per share, or 61.1x forward EV-to-EBITDA. Is now a good time to buy? See for yourself in our in-depth research report, it’s free.

Electronic Arts (EA)

Market Cap: $31.8 billion

Best known for its Madden NFL and FIFA sports franchises, Electronic Arts (NASDAQ:EA) is one of the world’s largest video game publishers.

Why Are We Positive On EA?

1. Iconic platform is known by nearly everyone in its market, allowing it to acquire new users at little to no cost
2. Disciplined cost controls and effective management result in a strong two-year EBITDA margin of 36.4%
3. Strong free cash flow margin of 27.1% enables it to reinvest or return capital consistently, and its expanding margin gives it even more flexibility

Electronic Arts’s stock price of $130.11 implies a valuation ratio of 12.7x forward EV-to-EBITDA. Is now the right time to buy? Find out in our full research report, it’s free.

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