These internet stocks have serious upside.
Some of the top-performing internet stocks of the past decade took a beating in the second half of 2018. But while traders are still concerned about the possibility of a bear market emerging in 2019, long-term investors are looking for opportunities to buy some of the best internet stocks at a discounted price. Nomura Instinet analyst Mark Kelley has updated his outlook for internet stocks, and he says there are plenty of long-term buying opportunities for choosy investors. Here's a look at eight internet stocks with upside ahead based on Nomura's latest price targets.
Google parent company Alphabet is Kelley's top overall internet stock pick. Kelley says new internet data regulations might actually help Google on a relative basis, as the tech giant has a size and resource advantage over its smaller competitors when it comes to adjusting to new rules. He says Google still has at least two years of advertising revenue growth in the high teens, and emerging businesses such as Waymo and Google Cloud should soon start to make meaningful contributions to overall revenue. Nomura has a "buy" rating and $1,350 price target for GOOGL stock.
Spotify Technology (SPOT)
Spotify has defended its position as the leading global music streaming company despite stiff competition from some of the world's largest tech giants. Spotify has maintained its subscriber growth and expanded its international operation to 78 countries. While Spotify's subscription revenue gets plenty of attention on Wall Street, Kelley says the company's advertising business is an underappreciated part of Spotify's margin expansion potential. Kelley projects average revenue per user to grow from between $5 and $6 today to around $15 or $16 in the long term. Nomura has a "buy" rating and $188 price target for SPOT stock.
While Facebook stock looks relatively cheap at the surface level, Kelley says investors looking to buy the dip in Facebook should make sure they understand the risks. In addition to potential regulatory headwinds, Kelley says Facebook is lacking long-term financial visibility as it transitions from news feed ads to Instagram ads and story- and video-based ads. Returns on Facebook's early-stage efforts to monetize Whatsapp and Messenger likely won't come for at least another year, and user growth on the legacy Facebook platform will remain challenged. Nomura has a "neutral" rating and $148 price target for FB stock.
Match Group (MTCH)
Kelley says Tinder will once again be the primary growth driver for Match in 2019. In addition to user growth, Kelley says additional features to increase Tinder engagement will help monetize the platform further, and significant margin expansion for Tinder should boost MTCH stock. Kelly says the rest of Match's portfolio should stabilize this year and generate modest growth in the long term. He says Match will likely invest heavily in promoting Hinge to Tinder users in coming quarters, making Hinge Match's next potential growth source. Nomura has a "buy" rating and $55 price target for MTCH stock.
ANGI Homeservices (ANGI)
Kelley says ANGI is a relatively stable internet business with revenue upside in the $4 billion to $5 billion range by 2020. He says ANGI will continue to face competition in online home services from Amazon.com (AMZN), Home Depot (HD) and others, but ANGI management has demonstrated its willingness to stay flexible and look for strategic acquisitions to maintain its competitive moat. While there may be some additional upside to the stock, Kelley says it is likely limited given ANGI's premium valuation. Nomura has a "neutral" rating and $17 price target for ANGI stock.
IAC is a diversified internet company, with stakes in a number of popular sites. Kelley says IAC investors can capitalize on any upside from holdings Match Group and ANGI Homeservices and get exposure to the rest of IAC's investments at or near enterprise value. Kelley says potential spin-offs of Vimeo and Dotdash could help unlock value for investors given their high-growth profiles. In addition, Kelley says IAC has a long track record of both timely acquisitions and wise asset sales. Nomura has a "buy" rating and $206 price target for IAC stock.
Like many other analysts on Wall Street, Kelley says he sees upside potential for Snap if the company can demonstrate its redesign issues and user growth hiccups are in the past. If an Android redesign for the Snapchat app is well-received, Kelley says Snap may have a chance to leverage advertising opportunities such as Snap Pixel and a new partnership with Amazon. In the meantime, management turnover and lackluster active user data has Kelley cautious on the high-risk/high-reward stock. Nomura has a "neutral" rating and $6 price target for SNAP stock.
Like Facebook, Criteo has all the markings of an inexpensive stock with limited downside in a volatile market. However, Kelley says upside is likely also limited until Criteo can demonstrate a return to double-digit revenue growth and provide evidence that its newest products currently in development are performing well. Kelley is projecting 15 percent revenue growth by the third quarter of 2019 but says the market will likely not reward the stock with earnings multiple expansion until it officially hits the double-digit growth threshold. Nomura has a "neutral" rating and $28 price target for CRTO stock.
These oversold internet stocks are ripe to buy now.
Here's a look at eight internet stocks with upside ahead based on price targets:
-- Spotify Technology (SPOT)
-- Facebook (FB)
-- Match Group (MTCH)
-- ANGI Homeservices (ANGI)
-- IAC/InterActiveCorp (IAC)
-- Snap (SNAP)
-- Criteo (CRTO)
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