15 Stocks To Know From Internet Sector
Thursday, June 17, 2021 3:10 PM

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eCommerce
 
Scale-based retailers with strong brands continue to be the best way to play the eCommerce space as they provide selection, convenience, and peace of mind when consumers transact online. USA eCommerce Y/Y spending appears to have accelerated in CQ1 (through 2/10) with +6% growth vs. +3% growth in CQ4, per comScore. Note that while the data under represent growth rates, it has directional significance.
 
Online Advertising
 
Overall ad spending growth appeared to have accelerated in CQ1 marking the strongest Y/Y growth in several quarters, owing to a stronger economy and easy comparisons. Checks suggest search-advertising pricing was strong, driven by better conversion rates as more consumers transacted. Display advertising also showed strength, driven by Y/Y pricing increases as advertisers, at the margin, shifted incremental spend toward online channels. Google's query + cost-per-click trends remained healthy.
 
Interactive Entertainment

 
Several hit titles launched in CQ1, but – according to NPD – USA software sales still fell 14% Y/Y QTD through 2/10. Y/Y growth returned in March owing to easy comparisons, but anticipate that software sales were down Y/Y in CQ1. Y/Y revenue growth rates may become increasingly strong as the year evolves owing to strong product releases such as Activision Blizzard's StarCraft II concurrent with battle.net, Microsoft's Natal plus Sony's Move motion sensor products, combined with easy comparisons.
 
Since many Internet companies reported CQ1 results in mid-April and provided CQ2E / C2010E, the US Dollar has strengthened +12% / +6% vs. EUR / GBP, owing to ongoing concerns about European sovereign debt. Current level of appreciation of USD against EUR / GBP could negatively affect (on an un-hedged pure impact basis) Amazon.com C2010E revenue / op. EPS by -2.6% / -2.4%; eBay (-3.5% / -6.9%), Google's (-3.0% / -4.3%); Vistaprint (-3.6% / -4.9%) and Yahoo! (-0.7% / -1.8%) vs. consensus based on June 1st FX rates. Analysis assumes no hedging and is intended to provide investors with a simple guide for potential currency impact in a rapidly changing environment. Since late April, the EUR is down 7% vs. the USD while shares of AMZN (-8%), EBAY (-10%), GOOG (-8%), VPRT (-9%), and YHOO (-7%) are down by similar amounts. Recent EUR weakness is largely reflected in share prices but further weakness (from current level of 1.22 USD / EUR) could cause additional share price declines. The challenge as stock pickers (not currency forecasters) is to remain upbeat on the fundamentals for most Internet leaders. US-centric Internet companies with least non-US exposure – include GSI Commerce (~5% of revenue), Blue Nile (12%), OpenTable (6%), Netflix (0%), WebMD (0%) and Shutterfly (0%).
 

Amazon

eCommerce leader that continues to take market share from offline and online channels. Accelerating mobile commerce business (estimate could reach 5-15% in next 5 years) and mobile commerce share could be higher than its eCommerce share. Faster-than-expected economic recovery could spur eCommerce growth. Growing inventory could force retailers to seek additional channels.
 

Ancestry.com

Remain buyers of ACOM shares as price target has been increased to $28 from $23 since current momentum is sustainable and the success and category awareness generated by Who Do You Think You Are could provide additional upside throughout C2010E.
 

Blue Nile Inc.

Following a solid CQ1, marked by strong international growth, prudent investments, and further proof of a secular rebound, NILE shares are becoming more compelling for long-term investors.
 

Dice Holdings Inc.

Attractive subscription-based business model and exposure to IT / Financials / Healthcare verticals – relatively low unemployment and high growth compared to overall economy. Recruitment recovery could boost shares. 
 

Drugstore.com

drugstore.com continues to make progress toward profitability, but the stock is trading at a premium.
 

eBay

Expect near-term payments growth acceleration to continue as PayPal pushes key growth areas (crossborder transactions, Bill Me Later, mobile and virtual goods). Valuation is compelling - 7x current EV / C2010E EBITDA ratio vs. an 15x eCommerce average. 
 

Google

Google shares represent a compelling value for investors with a 6-18 month investment time horizon. Improving ad environment, secular mix shift from offline to online advertising continues. It is well positioned in mobile search. Increased Android adoption could drive incremental ad revenue
 

GSI Commerce

GSI offers the only full-service eCommerce platform and is currently undergoing a sustainable free cash flow inflection. Acquisitions of RCI and MBS Insight will allow GSI to broaden its offering and diversify its revenue streams.
 

Netflix Inc

Optimistic Long-Term Despite Uncertainty around Competition and Digital Content Costs.
 

Overstock.com Inc

Current market value fully discounts continued revenue upside and recent momentum. While revenue outperformance is a positive sign, competition from scale-based eCommerce companies (Amazon.com + eBay) could challenge Overstock.com's business over the longer term.
 

Yahoo!

Advertising Shift to Online Provides Tailwind. Yahoo!'s user experience improving – just beginning to be reflected in better premium / non-premium mix. Minority stakes not appropriately valued + underappreciated. Integration of Microsoft transaction (CH2:10E) should add clarity, narrow strategic focus, improve margins. 
 

Vistaprint N.V.

Although Vistaprint's core business / opportunities remain positive, but slowing growth of new customer editions, a strong US dollar, and concerns by some investors over rising marketing costs may limit near-term upside.
 

Shutterfly Inc

The company continues to provide best-in-class products while remaining ahead of the curve in leveraging social media to drive customer acquisition / brand building. Furthermore, Shutterfly has the ability to grow revenue and expand operating margin in a highly competitive consumer Internet category.
 

TechTarget, Inc.

Although valuable content and lead-generating business model position the company to benefit from potential improvements in IT spending and advertising markets, at current levels, attractive valuation exists elsewhere in the group
 

WebMD Health Corp.

WBMD is well positioned to benefit from the ongoing shift of offline to online ad spend in Pharma. Shares have rebounded ~90% from 52-week low.

 

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Market news:

  • SKorea's defense chief resigns after NKorea attack Nov 25, 2021 08:01 PM

    • YEONPYEONG ISLAND, South Korea - South Korea's president ordered more troops to a front-line island and dumped his defense minister as the country grappled with lapses in its response to a deadly North Korean artillery strike.
    • The spit of land is just seven miles (11 kilometers) from North Korea, but had only six pieces of artillery.
    • Despite warnings from North Korea that any new provocation would be met with more attacks, Washington and Seoul pushed ahead with plans for military drills starting Sunday involving a nuclear-powered U.S. aircraft carrier in waters south of this week's skirmish.
      • 3 teens rescued after 50 days adrift in S. Pacific Nov 25, 2021 07:55 PM

        • WELLINGTON, New Zealand - Three teenagers survived 50 days adrift in a tiny boat in the South Pacific by drinking rainwater and eating raw fish and a seagull before being rescued by a passing trawler, a senior crewman on the fishing vessel said.
        • The trio - Samuel Pelesa and Filo Filo, both 15, and Edward Nasau, 14 - had been given up for dead on their coral atoll in the Tokelau islands, where a memorial service was held for them after extensive searches failed to find them.
        • Worried family members reported them missing and the New Zealand air force launched a sea search.
          • Merkel, Sarkozy want quick bailout for Ireland Nov 25, 2021 07:23 PM

            • BERLIN - The 16-nation euro currency will survive the debt crisis, German Chancellor Angela Merkel vowed Thursday, and a senior central banker said the European Union would be willing to increase its ?750 billion ($1 trillion) bailout fund if necessary.
            • Axel Weber, the head of Germany's central bank and a leading rate-setter at the European Central Bank, said Thursday that European nations would be willing to boost the emergency fund by as much as ?100 billion ($133 billion) to fully cover the total public debt load of Greece, Ireland, Portugal and Spain.
            • But when Merkel and Sarkozy discussed the eurozone's troubles on the phone Thursday evening they said the ?750 billion emergency fund for the euro would remain unchanged until it expires in 2013, German government spokesman Steffen Seibert said in a statement.
              • More than 600,000 people killed by 2nd-hand smoke Nov 25, 2021 07:14 PM

                • LONDON - Second-hand smoke kills more than 600,000 people worldwide every year, according to a new study.
                • They found 40 percent of children and more than 30 percent of non-smoking men and women regularly breathe in second-hand smoke.
                • Peruga said WHO was particularly concerned about the 165,000 children who die of smoke-related respiratory infections, mostly in Southeast Asia and Africa.
                  • Brady throws 4 TD passes, Patriots top Lions 45-24 Nov 25, 2021 06:02 PM

                    • DETROIT - Tom Brady was perfect on the field and his exit was first class.
                    • Brady threw a season-high four touchdown passes, all in the second half, and the New England Patriots routed the Detroit Lions 45-24 on Thursday after trailing by 11 late in the second quarter.
                    • "We showed some resiliency, coming out in the second half and playing the way we did when the crowd was into it," Brady said.

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