Why Internet Stocks Are Walking a High-Risk Tightrope in 2025

The internet sector, once a bastion of unbridled growth and innovation, now faces a precarious balancing act in 2025. For investors, the challenge lies in navigating valuation extremes, uneven revenue growth, and margin pressures among key players like eBay, Shutterstock, and LegalZoom. These companies exemplify the sector's fragility: while some show resilience, others teeter on the edge of overvaluation or operational decline.

eBay: A Tale of Resilience and Earnings Pressure

eBay Inc. (EBAY) has demonstrated robust operational performance in 2025, with Q4 revenue rising 9% year-over-year to $2.8 billion and full-year revenue projected between $10.97 billion and $11.03 billion. Its non-GAAP operating margins of 27.1% in Q3 and a projected 25.8–26.3% in Q4 highlight strong cost discipline. However, the company's earnings per share (EPS) for the past twelve months fell to $4.68 from $5.22 in 2023, signaling a slowdown in profitability.

Despite these earnings pressures, eBay's valuation appears attractive. It trades at a P/E ratio of 17.8x, significantly below the industry average of 21.4x and its peer group's 63.6x. This discount reflects investor skepticism about eBay's ability to sustain its growth trajectory, particularly as it faces intensifying competition in the digital marketplace.

Shutterstock: Segment Divergence and Merger Uncertainty

Shutterstock (SSTK) reported Q3 2025 revenue of $260.1 million, a 4% year-over-year increase. Yet, this growth masks underlying fragility. The Content segment, a core revenue driver, declined by 5% due to weak new customer acquisition. Meanwhile, the Data, Distribution, and Services segment surged 40% to $65.7 million, buoyed by the Envato acquisition.

The company's net income margin contracted to 5.1% in Q3 2025 from 7.0% in 2024, largely due to $7.1 million in professional fees tied to its proposed merger with Getty Images. While adjusted EBITDA margins improved to 30.5%, Shutterstock's P/E ratio of 11.29 suggests the market is pricing in significant risk. This low valuation, though seemingly undemanding, reflects doubts about the company's ability to execute its merger strategy and stabilize its Content segment.

LegalZoom: Growth vs. Margin Erosion

LegalZoom (LZ) has posted impressive revenue growth in 2025, with Q3 revenue reaching $190.2 million-a 13% increase year-over-year. Subscription revenue, a key metric, grew 13% to $125.4 million, driven by compliance and virtual mail services. However, this growth has come at a cost. Net income margins plummeted to 2% in Q3 2025 from 7% in 2024, and adjusted EBITDA margins fell to 24% from 28%.

The company's valuation further amplifies its risk profile. LegalZoom trades at a P/E ratio of 79.2x, far exceeding its peer group's average of 23.2x and the industry average of 24.2x. Analysts estimate a fair P/E of 42.3x, suggesting the stock is overvalued despite its revenue momentum. This disconnect between growth and valuation raises concerns about sustainability, particularly as margins continue to erode.

The Tightrope: Valuation, Growth, and Margins

The internet sector's current dynamics underscore a broader tension. eBay's undervaluation and Shutterstock's segment divergence highlight operational and strategic risks, while LegalZoom's high valuation and margin pressures exemplify the perils of growth-at-all-costs strategies. For investors, the key question is whether these companies can adapt to shifting market conditions.

eBay must prove it can reverse its EPS decline and defend its market share. Shutterstock needs to stabilize its Content segment and navigate the complexities of its Getty Images merger. LegalZoom, meanwhile, faces the daunting task of justifying its lofty valuation while maintaining profitability.

In 2025, the internet sector's tightrope walk continues. For investors, the stakes are high-but so are the rewards for those who can spot the companies poised to balance innovation with fiscal discipline.