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Mark Zuckerberg, founder and chief executive officer of Facebook Inc., smiles during a news conference at the company’s headquarters in Palo Alto, California, U.S., on Wednesday, Oct. 6, 2010.
2019 was a great year for internet stocks and many Wall Street analysts expect the good times to continue in 2020.
The S&P 500 finished 2019 up 28.9% in large part because of the so-called FAANG stocks, which include top internet names like Facebook and Amazon. Facebook ended the year up 56.6% while Amazon jumped 23%.
Analysts told clients this week there’s more to come from those companies as well as some others including Shopify, Zillow, Alphabet, Netflix, and Alibaba.
After yet another record setting holiday season, Amazon continues to be one stock all investors must own according to Argus.
“Third-party sellers posted record-breaking results, as worldwide unit sales grew at a double-digit pace from the prior year and surpassed a billion items sold,” analyst Jim Kelleher said.
Early data shows the “Amazon ecosystem displayed strength across numerous metrics,” he said.
The firm also said the stock’s valuation was attractive now after what it said was “relative underperformance” in 2019.
“We believe that AMZN warrants long-term accumulation in most equity accounts,” he said.
2019 may come to be known as the year that the streaming wars began with the debut of Disney+ and Apple TV+ but don’t give up on Netflix just yet RBC says.
The firm released its “Internet Surprises for 2020” this week and said that while the competition for viewers is real it believes Netflix could actually see subscriber additions “accelerate,” this year.
“In the U.S., Netflix in 2020 will be comping against a material price increase and a dramatic slowdown in its marketing spend, and Netflix should benefit from an accelerating decline in Linear Paid TV Subs,” analyst Mark Mahaney said.
“This would indeed be a surprise,” he said.
Shares of Netflix ended 2019 up 21%.
Regulatory scrutiny continues to be a hot topic for internet stocks like Alphabet especially with the 2020 election season underway.
But one analyst urged clients to stand strong and said all the talk is bluster.
“Although we expect the anti-trust rhetoric to reach deafening levels ahead of the U.S. Presidential election this year, we are not afraid of a potential breakup of Alphabet,” Monness, Crespi, Hardt & Co. analyst Brian White said.
Besides, the firm said Alphabet may actually be worth more in a break-up.
“In our view, investors would likely value the sum of Alphabet’s businesses at a higher level than the company as a single, standalone business,” the analyst said.
“”We continue to believe Alphabet is undervalued for its growth prospects, leadership position in digital advertising and cash-rich balance sheet,” he said.
Shares of the company ended 2019 up 28%.
Here’s what else analysts are saying about internet stocks in 2020:
Deutsche Bank- Facebook, Buy rating
We are bullish on Facebook and see the renewed strength in the core Facebook app becoming a critical leg of the story around FB shares in 2020. This was not a coincidence, but the result of extensive product work – reworking the core newsfeed algorithm promoting meaningful content, rolling out Stories, scaling Marketplace, building its Groups product, adding more video content and continuing to improve relevancy algorithms across content and ads.”
Argus- Amazon, Buy rating
“Relative underperformance in the shares in 2019 has pushed valuations into more attractive ranges. We believe that AMZN warrants long-term accumulation in most equity accounts. .. .Full retail data on the holiday fourth quarter will not be available until later in January, but in broad outlines the Amazon ecosystem displayed strength across numerous metrics. Third-party sellers posted record-breaking results, as worldwide unit sales grew at a double-digit pace from the prior year and surpassed a billion items sold.”
RBC- Netflix, Outperform rating
“Netflix’s Subs Adds Accelerate In ’20 – This would indeed be a surprise. With the clear slowdown in U.S. Sub Adds – even prior to the Disney+ and Apple TV+ launches in November – and with the probable Large Numbers Law impact on Netflix’s International Sub Adds – not to mention increasing competition due at least in part to Disney+’s International rollout in early 2020 – there is clear market sentiment that Netflix’s best growth days are behind it. That its Sub Adds growth will decelerate, with some calling for an actual decline in its U.S. Paid Subs. So were Netflix’s Global Adds growth to accelerate, it would indeed be a surprise. But we think there’s an interesting possibility here (tho not a probability). Because…in the U.S., Netflix in 2020 will be comping against a material price increase and a dramatic slowdown in its marketing spend, and Netflix should benefit from an accelerating decline in Linear Paid TV Subs.”
Monness, Crespi, Hardt & Co.- Alphabet, Buy rating
“We continue to believe Alphabet is undervalued for its growth prospects, leadership position in digital advertising and cash-rich balance sheet. Although we expect the anti-trust rhetoric to reach deafening levels ahead of the U.S. Presidential election this year, we are not afraid of a potential breakup of Alphabet. In our view, investors would likely value the sum of Alphabet’s businesses at a higher level than the company as a single, standalone business.”
Rosenblatt- Shopify, Buy rating
“We expect Shopify Fulfillment Network will be up and running by 4Q20E and given pent-up merchant demand we hear from industry, we don’t expect an extended long-tail revenue ramp. We assume a modest 30 bps ’21E SFN take rate on US-Canada gross merchandise value, implying Shopify Fulfillment Network ’21E revenue of ~$270M, or 12% of US-Canada revenue and 9% of total Shopify revenue. Exiting CY25E, we expect SFN revenue will ramp to over 50% of US-Canada revenue on a 1.8% take rate, which we still consider modest in light of FBA’s (Fulfillment by Amazon) near 15% take rate today.”
RBC- Alibaba, Outperform rating
“We continue to believe Alibaba has the luxury of being aggressive in strategic investments to capitalize on China’s growing consumer while delivering profit growth. .. .We are modeling investments to continue at a similar pace while the company generates accelerating profit growth through 2020. We continue to view BABA’s fundamental valuation as very attractive.”
Cowen- Zillow, Outperform rating
“Zillow remains controversial, but we see a transition in ’20 from bold management vision to steady execution and consistency. We expect 1) improving revenue growth in core internet and margin expansion; 2) Offers segment revenues to more than double and grow within investment guardrails; and 3) Flex could be a catalyst. Overall, risk-reward looks compelling entering the new year.”
