Top analyst Colin Sebastian at Baird is highlighting opportunity in adding or building positions in some large cap Internet players for the new year on the heels of some post-election back-pedaling in the sector.
For this reason, the analyst recommends investors take advantage of the pull-back, particularly for giants like Facebook Inc (NASDAQ:FB) and Amazon.com, Inc. (NASDAQ:AMZN), who he sees “positioned to benefit from short- and long-term secular tailwinds and disruptive innovations.” However, when it comes to Twitter Inc (NYSE:TWTR), Sebastian remains sidelined amid steep competition ahead.
Colin Sebastian has a very good TipRanks score with a 74% success rate and he stands at #24 out of 4,351 analysts. Sebastian gains 17.0% in his annual returns. When recommending FB, Sebastian earns 26.0% in average profits on the stock. When suggesting AMZN, Sebastian realizes 37.4%. When rating TWTR, Sebastian yields 0.0%.
Let’s dive in:
Facebook Will Benefit in Rise of AI/Machine Learning and Programmatic Video
In addition to post-election buying opportunity, with artificial intelligence (AI) and machine learning really starting to take wing, Sebastian recognizes Facebook as one of the key players set up to benefit from this mainstream “revolution.”
Moreover, the analyst believes that although it remains to be “still very early,” he predicts, “The rise of programmatic video will hasten the shift of ad budgets from traditional TV,” naming Facebook as a key beneficiary.
Therefore, the analyst reiterates an Outperform rating on shares of FB without listing a price target.
However, the social media giant is not without its risks. Sebastian notes, “Facebook has achieved overwhelming dominance in the bulk of its key markets and consequently is likely to face increased scrutiny from the DOJ, the EU, and other government watchdogs.”
Additionally, “Google, most notably, has identified social networking signals as an essential ingredient required for a competitive search engine. Google+, Google’s social network, represents the company’s most directly competitive initiative to-date. Over time, we expect other large technology companies to be threatened by Facebook and hence are likely to increase competition with them,” Sebastian surmises.
This is a long-term theory, as it makes sense companies will try to match the giant’s massive success. For now, though the analyst identifies some risks, he maintains full confidence in the stock.
TipRanks analytics exhibit FB as a Strong Buy. Out of 37 analysts polled by TipRanks in the last 3 months, 34 are bullish on Facebook stock and 3 remain sidelined. With a return potential of nearly 23%, the stock’s consensus target price stands at $155.06.
Amazon a Key Winner: The 5G Network Upgrade Factor and Competitive Strength
Sebastian sees Amazon as another key contender to maximize on the ascent and implications of AI/machine learning. As such, the analyst reiterates an Outperform rating on AMZN with a price target of $850, which represents a 6% increase from where the shares last closed.
Meanwhile, as “5G creeps out of the shadows,” Sebastian believes investors will hone in on beneficiaries, with the e-commerce and online auction leader at the top of the list, adding “The next network upgrade cycle should mark significant improvement over 4G/LTE and vastly improve speed and reliability of heavy Internet content and applications.”
Furthermore, the analyst sees AMZN as one of the “key winners” in the sustained tech disruption stemming from cloud services, explaining, “We expect more enterprise-level companies to migrate towards cloud services, given clear benefits to operating efficiency. Expect cloud providers will continue to invest throughout the ‘stack.'”
Regarding the risk factor, Sebastian underscores, “With the introduction of the Kindle, Amazon has entered into direct competition with Apple, Barnes and Noble and other sellers of electronic products.” Even considering traditional retail rival threats “in the form of a combined click and mortar strategy,” the analyst nonetheless still sees the greater odds in AMZN’s favor.
Looking ahead, “In the event of another recession, Amazon will likely see its growth reduced again; however, longer term downturns typically increase Amazon’s competitiveness as weaker competitors may be forced out of business or have less capital flexibility to make long-term investments,” Sebastian contends.
TipRanks analytics demonstrate AMZN as a Strong Buy. Based on 32 analysts polled by TipRanks in the last 3 months, 30 rate a Buy on AMZN stock while 2 maintain a Hold. The 12-month average price target stands at $953.48, marking a 19% upside from where the stock is currently trading.
Twitter Could Struggle Under Weight of Competition and Monetization Challenges
Though Sebastian sees bullish forecasts for the other two large-cap internet players, he opines from the sidelines on Twitter’s prospects, reiterating a Neutral rating on shares of TWTR with a $17 price target, which represents a just under 1% downside from where the stock is currently trading.
Sebastian explains his cautious stance, asserting, “Twitter faces intense competition for its users as well as advertisers from three broad categories of companies: Facebook and other social networking apps and websites (e.g., Google+, Cyworld in Korea, Mixi in Japan, vKontakte in Russia); emerging communication apps (e.g., Snapchat, WhatsApp, Line, Tumblr, Instagram, Pinterest, Kakao and Reddit); and several direct and indirect online advertising players (e.g., Google, Yahoo, and AOL).”
“Monetization of mobile usage may present challenges,” the analyst adds, seeing weakness in a decline of ad engagements and impressions as mobile ads spiral down in “prominence” on mobile applications compared to desktop usage.
Ultimately, “We believe that the majority of Twitter users are consuming content rather than contributing tweets […] But unlike most Internet platforms, the value of Twitter is not discernible by the number of active tweeters, as there is tremendous value provided by users who follow, favorite and re-tweet, which are mechanisms to understand user interests, as well as a means of targeting ads,” Sebastian concludes.
TipRanks analytics indicate TWTR as a Hold. Out of 20 analysts polled by TipRanks in the last 3 months, 4 are bullish on Twitter stock, 12 remain sidelined, and 4 are bearish on the stock. The stock’s consensus target price stands at $17.34.