What is the average price-to-earnings ratio in the internet sector?

The average price-to-earnings ratio varies significantly within the internet sector but, as of Q2 2018, the industry average is 37.93.

The price-to-earnings (P/E) ratio is an equity valuation metric that shows the relationship between the price of a company’s shares and its per-share earnings. The calculation for the P/E ratio divides a company’s market value per share by its earnings per share (EPS). High P/E ratios indicate investors anticipate a higher growth rate in earnings moving forward.

The P/E ratio is best used when comparing two like companies in the same industry. Investors also compare a company's P/E ratio to the current average P/E for the stock market as a whole, although industry-specific comparisons are much more significant.

The internet sector is a partnership between the information technology and communications sectors. Companies operating in this sector are primarily responsible for making, exchanging and distributing digital information with applications, such as information technology systems. Because the internet sector is an amalgamation of two sectors that are parts of the very structure of trade and business, it is considered to be of vital importance.

The internet sector is broken up informally into subsectors because it acts as a gateway for the production of a variety of goods and services. The subsectors include service delivery, e-commerce, hosting and broadcasting, and software services. There are a number of exchange-traded funds (ETFs) available to investors and analysts to specifically track subsectors within the broader internet sector. While the information technology portion of the internet sector changes frequently, making it more volatile, the communications portion of the sector is in demand on a consistent basis, making it less volatile and less subject to fluctuations in price.

(For related reading, see "How Does Government Regulation Impact the Internet Sector?")