It's been a wild ride for Internet companies this year. From Facebook's (NASDAQ: FB ) botched IPO to Groupon's (NASDAQ: GRPN ) misleading accounting tactics, it's easy to get distracted by the negative headlines in the space. After all, companies operating within the Internet industry face some of the fiercest competition around.
However, where there is increased competition, there's often abundant opportunity. Let's explore three Internet companies with the management, brand recognition, and competitive advantages needed to dominate in the year ahead.
As the world's largest online marketplace, eBay (NASDAQ: EBAY ) is well-positioned within the thriving e-commerce sector. It's not by chance that the company's stock is up more than 63% year to date. For one thing, management's decision to invest in mobile technology is paying off. In fact, eBay's smartphone applications have been downloaded more than 100 million times worldwide. This trend should only get stronger as more consumers around the world upgrade to smartphone and tablet devices.
Growth in eBay's PayPal business is another reason to own the stock. PayPal currently serves 117 million users. That's more than Discover and American Express (NYSE: AXP ) . eBay CEO John Donahoe suggests that PayPal and eBay mobile together will do about $20 billion in volume this year.
He's probably not far off, considering both eBay marketplaces and PayPal enjoyed record sales days this month. According to TechCrunch, PayPal reported that its global mobile payment volume on Dec. 2 trumped that of Cyber Monday by more than $1 million.
With the mobile-payments market expected to grow at a 68% compounded annualized rate over the next five years, PayPal will continue to profit from its first-mover advantage in the market. eBay's solid lead in mobile and global growth in its PayPal business are just some of the many reasons this stock will continue to climb higher in the year to come.
Unlike eBay, this next stock was not a best performer this year. However, 2013 is Facebook's time to shine. Becoming the largest social media platform the world has ever known was half the battle. Today, Facebook's competitive advantage is tied to its more than one billion monthly active users.
However, I'll be the first to admit that I wasn't keen on buying shares of Facebook out of the gate. In fact, at the start of the year I warned readers about the IPO uh-oh -- otherwise known as investing in the hype. Facebook was no exception. The stock was overhyped and oversold ahead of opening day. It also didn't help that the company's CFO, David Ebersman, flooded the market with 25% more shares just days before the IPO.
Nevertheless, the company is moving forward, and ahead of it lays a $55 billion advertising market ripe for the taking. Facebook is also making a meaningful push into mobile. This should drive future growth for the social giant, as mobile Internet usage is on track to exceed traditional PC Internet usage in the coming years.
Another upside for Facebook is that it benefits from network effects. Meaning, the more people that use Facebook, the more likely they are to stick around. LinkedIn (NYSE: LNKD ) also offers a great example of this, as the company has been able to maintain its dominance in the professional-social niche, despite growing competition in the space.
Hopefully Facebook's stock will take a cue from LinkedIn. This year, shares of LinkedIn soared nearly 80% as the professional social network found better ways to monetize its user base. With much of the market now underestimating Facebook's potential, it will no doubt be an exciting 2013 for Facebook shareholders if the company is able to successfully capitalize on opportunities in mobile and digital advertising.
New leadership for a new year
Finally, no list of portfolio-worthy Web stocks this year is complete without Yahoo! (NASDAQ: YHOO ) . Despite the turbulent year this company has endured, its stock is up more than 21% year to date. This is a testament to Yahoo!'s resilience. And with new leadership and a fresh focus on mobile content, the company looks poised for a comeback.
In July, Marissa Mayer stepped in as Yahoo!'s new CEO. Since her arrival at the embattled Internet company, the ex-Google executive has redefined Yahoo's corporate culture, released a more competitive Flickr application, and updated the company's email platform.
More than this, Yahoo!'s stock looks cheap. Shares currently trade at just five times earnings, or around $19 apiece. This may indicate that the market underestimates Yahoo's ability to recapture growth. As a result, even the slightest uptick in Yahoo's core operations in the year ahead should push shares higher. Ultimately, I believe the uncertainty in this name will be worth the risk for long-term investors.
There you have it: my three Web picks for 2013. While I haven't listed these stocks in order of priority, I am certainly most optimistic about eBay.
After the world's most hyped IPO turned out to be a dunce, most investors probably don't even want to think about shares of Facebook. But there are things every investor needs to know about this company. We've outlined them in our newest premium research report. There's a lot more to Facebook than meets the eye, so read up on whether there is anything to "like" about it today, and we'll tell you whether we think Facebook deserves a place in your portfolio. Access your report by clicking here.