5 ways to profit from the Internet

The digital future means opportunities are still being offered up.

a woman

A new report by marketing agency ZenithOptimedia forecasts Internet advertising expenditures to overtake newspapers for the first time in 2013, and then exceed the combined total of newspaper and magazine advertising expenditure in 2015.

That’s a paradigm shift. The fastest-growing segment of Internet advertising is mobile, with smartphones and tablets becoming common currency, and mobile advertising expenditure is forecast to grow 67% in 2013. Contrast that with print, forecast to shrink an average 2-3% a year between 2012-15.

Here are some digital businesses perfectly leveraged to take advantage of the forthcoming advertising bonanza. Three are among Australia’s top 200 companies already, having grown rapidly, they’re established favourites, primed for future success. The two others may just be tomorrow’s multibillion-dollar success stories. A brave investor’s ticket to riches.

Jobs website Seek (ASX: SEK) is trying to replicate its raging success at home by investing in online operations across southeast Asia, China, Brazil and Mexico. At home it simply dominates the competition.

Offering unrivalled reach to advertisers, its website has recorded more than 13 million visits a month, with an additional 2.1 million mobile visits recorded a month. It estimates it has three times the number of job opportunities advertised than its nearest competitor. The company grew profits 8% to $141million for financial year 2013.

Automobile website Carsales.com (ASX: CRZ) is another outstanding performer that continues to grow website and mobile traffic. Buyers, sellers and paying advertisers naturally gravitate towards the website with the most tradable vehicles. In turn this compounds both popularity and profits. The competitive advantage, or economic moat, becomes increasingly hard for rivals to break. For financial year 2013 net profit was up 17% to $83.5 million.

Carsales recently acquired a 19.9% equity interest in iCar Asia (ASX: ICQ). It’s an operator of automotive websites in Malaysia, Indonesia and Thailand. For the six months to June 30 the company posted a loss of more than $2.7 million, with revenues of just over $0.5 million.

Nonetheless, the share price has skyrocketed over 300% in the past year. The prospect of Carsales.com taking over iCar Asia is seemingly on investors’ minds. Also, as the middle classes develop, growing car and Internet use in Asia is a given. However, the lure of emerging market riches can be deceptive — especially when you consider that only 4.5% of Indonesians actually own a car — so watch this one carefully before you invest.

REA Group (ASX: REA) is the business behind realestate.com.au. It’s another market favourite, with shares up more than 140% in the past year. Dwarfing last year’s returns to investors of Carsales and Seek, it’s now trading on a demanding price-to-earnings ratio around 40. This means investors are banking on it and Australia’s property market to keep growing fast. In September 2003 it traded at less than 45 cents, compared to $38 today.

Another property website operator with significant potential is iProperty Group (ASX: IPP). It operates websites in Singapore, Indonesia, Malaysia and Hong Kong. The share price has more than doubled since July, despite the company posting a statutory loss of $3.3 million for the six months to June 30. Profitable investments and growing revenues have impressed the market. Moreover, the idea of the next REA Group is a seductive one.

Foolish takeaway

Websites with the largest audiences gain a disproportionately large share of advertising revenues. With Internet advertising expected to account for 68% of total growth in advertising expenditure between 2012-15, established websites will continue to benefit.

Of the three mentioned, Seek has the lowest price-to-earnings ratio and looks to offer the best value. Investors should be wary of the get-rich-quick temptations of the two small-cap operators. Potential is nothing unless delivered, and their recent share price run-ups are hard to justify on the back of half-year results.

However, two of Australia’s most promising small companies are still flying under the radar. Discover these two exciting ASX investments in our brand-new special FREE report, “2 Small Cap Superstars”. Click here now, it’s free!

More reading

Motley Fool contributor Tom Richardson owns shares in Seek.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the five best ASX stocks for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now.

*Returns as of January 12th 2022

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

asx share price competitions represented by businessmen arm wrestling
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

person reading news on mobile phone
⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »