Reviewing the fourth quarter results of Internet companies, RBC Capital Markets said Netflix, Inc. (NASDAQ: NFLX) is its top large-cap pick, as it sees its long thesis as fully intact, stronger even. The firm noted the fourth quarter results of Internet companies showed robust growth trends.
Consolidation – ‘The In Thing'
Going by the fourth quarter results, analysts Mark Mahaney and Andrew Bruckner said consolidation/concentration on the Net is an ongoing trend. The analysts highlighted the 65 percent of the online ad dollar being controlled by Facebook Inc (NASDAQ: FB) and Alphabet Inc (NASDAQ: GOOGL), the dominance Amazon.com, Inc. (NASDAQ: AMZN) has on online retail and Priceline Group Inc's (NASDAQ: PCLN) Momondo acquisition.
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Plowing Back Profits
RBC Capital Markets believes 2017 would be an investment year, as Facebook, Amazon, eBay Inc (NASDAQ: EBAY), Akamai Technologies, Inc., (NASDAQ: AKAM), Zillow Group, Inc. (NASDAQ: ZG) and Yelp Inc (NYSE: YELP) all announced major investment initiatives. The firm views the investment outlook as symptomatic of the array of growth opportunities in this sector.
Video – A More Pronounced Trend
The firm noted management commentaries underlined the significance of video as a content and advertising platform, with Facebook highlighting its Video Tab strategy and remaining the most vocal on that front.
Innovation is the Key
The firm noted the FANG stocks have recovered materially post the election. According to the firm, the Trump Administration is highly unlikely to have a material impact on Internet sector fundamentals. The firm believes innovation is more likely to create long-term shareholder gains than Infrastructure.
Delving on its top large-cap longs, RBC said:
- Netflix – The firm sees a secular shift away from Linear TV, a leading position in subscriptions, proof of U.S. profitability, evidence of universal appeal and early signs of international profitability. The firm sees earnings per share to reach $10 by 2020, implying a valuation of $200 over the next two years.
- Facebook - RBC is even more positive on Facebook's long-term prospects following its strong Q4 print. The firm expects Facebook to maintain premium growth for a long time, given the current low market shares. Of any large cap, the firm believes Facebook has the most attractive growth-adjusted valuation.
- Priceline - The firm expects core profitability of Priceline's business to improve, given signs of declining deleverage with Performance Advertising. The company's accelerating share gains in the U.S. is a key positive, according to the firm.
- Rounding up the list of RBC Capital Markets' large-cap longs are Google, Amazon, Alibaba Group Holding Ltd (NYSE: BABA) and Expedia Inc (NASDAQ: EXPE).
- Netflix – Outperform/$175
- Facebook – Outperform/$170
- Priceline – Outperform/$2,000
- Google – Outperform
- Alibaba – Outperform
- Amazon – Outperform
- Expedia - Outperform
Latest Ratings for NFLX
|Jan 2017||Loop Capital||Maintains||Buy||Buy|
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