A positive outlook for internet and e-commerce firms.
Last year was a great year for the stock market, but large internet and e-commerce stocks had mixed returns. The internet still provides a tremendous long-term growth opportunity for investors, but margin pressures, regulatory risks and disappointing initial public offerings weighed on the group in 2019. Bank of America says large-cap stocks and internet media stocks should outperform in 2020, given the positive outlook for advertising spend, particularly ahead of this year's general election. The firm also projects robust e-commerce and online video growth this year. Here are eight internet and e-commerce stocks to buy, according to Bank of America.
Alphabet (GOOG, GOOGL)
Google parent company Alphabet is the newest member of the $1 trillion club. But analyst Justin Post says thereâ€™s even more upside ahead. Post projects the company will expand, with a 20% ad revenue growth this year. He also says Google Cloud should continue to gain traction, generating more than $10 billion in 2020 revenue. He adds the companyâ€™s recent management transition, including Google CEO Sundar Pichai taking over the same position at Alphabet, could breathe fresh air into the companyâ€™s corporate philosophy. Bank of America has a â€śbuyâ€ť rating and $1,620 price target for GOOGL stock.
Amazon has significantly lagged the overall market in the past year, which is unfamiliar territory for its shareholders. Slowing revenue growth, antitrust scrutiny and regulatory headwinds have all dampened Amazonâ€™s returns. But Post says Amazon remains one of his top long-term picks. He says Amazonâ€™s high-growth cloud business is still in its relatively early stages and the amount of global data should grow exponentially over the next decade. Free one-day shipping and grocery delivery are near-term growth drivers as well. Bank of America has a â€śbuyâ€ť rating and $2,330 price target for AMZN stock.
Facebook faces an intense spotlight in 2020 given revelations about the companyâ€™s role in the 2016 U.S. presidential election. However, Post says there are plenty of reasons to buy the stock. He says the market may not fully appreciate Facebookâ€™s near-term user monetization opportunities, including its Messenger and WhatsApp platforms, even after gaining nearly 50% in the past year. Post says Facebook still has a relatively attractive forward earnings multiple of around 22, especially when considering its impressive growth numbers. Bank of America has a â€śbuyâ€ť rating and $260 price target for FB stock.
Netflix is the last of the four so-called FANG stocks on this list, and it's analyst Nat Schindlerâ€™s top stock pick within the group. Despite concerns about a boom in new streaming competition from Walt Disney Co. (DIS), Apple (AAPL), Comcast Corp. (CMCSA) and others, Schindler says conservative subscriber growth expectations, a potential cash burn inflection point and limited regulatory concerns are a winning combination for Netflix. Schindler says Netflix tripling both its Oscar and Golden Globes nominations this year is evidence of its differentiated original content offerings. Bank of America has a â€śbuyâ€ť rating and $426 price target for NFLX stock.
Uber Technologies (UBER)
Uber hit the market with high expectations in May 2019. But as the ride-sharing company approaches its one-year initial public offering anniversary, the reality of Uberâ€™s challenging business model has the stock trading nearly 22% below its IPO price. Fortunately, Post says Uberâ€™s operating leverage should improve this year, and an expanding population of millennials in the workforce should help drive revenue growth. Californiaâ€™s Assembly Bill 5 law, which is shaking up the gig economy, is a potential headwind. But Post says the law will likely face extensive local and federal legal challenges. Bank of America has a â€śbuyâ€ť rating and $44 price target for UBER stock.
Activision Blizzard (ATVI)
Analyst Ryan Gee says gaming giant Activision Blizzard should return to revenue growth in 2020 given strong user trends in the companyâ€™s core â€śWorld of Warcraftâ€ť and â€śCall of Dutyâ€ť franchises. Gee says the companyâ€™s shift from expensive Battle Pass and downloadable content to more free content helps improve player experience and engagement, which will drive higher in-game spending over time. Gee is anticipating at least one large Blizzard game release in the next three years and is projecting mid-teens earnings growth through 2022. Bank of America has a â€śbuyâ€ť rating and $66 price target for ATVI stock.
Post says Twitter is one of Bank of Americaâ€™s top overall small and mid-cap stock picks for 2020. The shift to over-the-top streaming, an improvement in user engagement trends and a strong event calendar are tailwinds for Twitter this year. While Twitter made headlines by banning political ads on its platform, Post says the election and the Olympics should stimulate user engagement. In addition, Post says Twitterâ€™s recently announced promoted trend spotlight and its updated mobile app promotion features should be positive revenue contributors. Bank of America has a â€śbuyâ€ť rating and $39 price target for TWTR stock.
After years of underperformance, Snap shares skyrocketed 232% in the past year on the strength of accelerating user growth, revenue growth and average revenue per user growth. Post says third-party data suggests Snapchat performed well in the fourth quarter of 2019, and the company is on track to at least meet consensus analyst estimates of 5 million daily active users added in the quarter. Long term, Post says Snap is one of the best opportunities for advertisers to reach consumers younger than 35. Bank of America has a â€śbuyâ€ť rating and $18 price target for SNAP stock.
Top internet and e-commerce stocks to buy:
Alphabet (GOOG, GOOGL)Amazon.com (AMZN)Facebook (FB)Netflix (NFLX)Uber Technologies (UBER)Activision Blizzard (ATVI)Twitter (TWTR)Snap (SNAP)