With the 2017 trading year winding down fast, many of the top brokerage firms that we cover here at Smarter Analyst are releasing their top stock ideas for 2018. Today, William Blair provides their top picks, including Facebook, Inc. (NASDAQ:FB) and Amazon.com, Inc. (NASDAQ:AMZN), while noting several reasons to be bullish on these two internet giants.
Facebook Has This Bull Betting on 2018 to Be a Good Year
Facebook has four core platforms sharpening its leg up over the competition, between core Facebook, golden acquisition Instagram that has already hit 500 million daily active users (DAUs), as well as both Messenger and WhatsApp boasting 1 billion plus users across the globe. As the social media titan continues to magnetize rising user attention along with escalating time spent on each platform, especially on back of a new focus on video, one bull gives the company a “compelling” data upper hand on the tech leaderboard.
William Blair analyst Ralph Schackart believes the titan has an added $16 billion potential prospect ahead in advertising revenue on back of 21% of ad spend invested in mobile against 28% of consumer time spent.
Giving the advantage to CEO Mark Zuckerberg’s brainchild over the rest of its peers, the analyst maintains an Outperform rating on FB stock without listing a price target. (To watch Schackart’s track record, click here)
Schackart highlights, “We believe consumers ultimately will spend more time on mobile devices and more time in-apps, which obviously favors Facebook as owning some of the most-frequented apps on smartphones. Facebook captures about 20% of global digital advertising spending (a category growing double digits), and we estimate the company will increase its share by 300 basis points in 2018.”
Additionally, next year “could be a breakout year” for Instagram, which has been a massive success for the titan as DAUs and time spent keep spiraling up. Schackart explains, “The company has restricted ad load on the platform to date, so a 2018 catalyst could be increasing Instagram ad load (following the same playbook as core Facebook) and capturing a higher share of brand dollars.” Considering that the analyst projects 70% to 80% of core Facebook’s revenue stems from performance-based ads, there could be even more brand dollars in the Instagram wings, continues the analyst: “Our conversations with ad buyers on the platform suggest the performance (both brand and direct response) has been on par with core Facebook. We believe the ad platform can scale rapidly going forward by leveraging existing FB ad-tech, driving upside to consensus estimates.”
Meanwhile, the analyst looks ahead to monetization that has yet to be realized for Messenger and WhatsApp, anticipating strategies to keep playing out next year, “which could better help investors size the potential of these platforms.” Though these plans are not concrete, Schackart concludes enticed by the sheer possibilities and the kind of significant revenue contributions that could be brought to Facebook’s table.
TipRanks reveals an analyst consensus echoing bullish on this social media darling, with 29 analysts polled in the last 3 months rating a Buy on Facebook stock, leaving just 1 maintaining a Hold and 1 issuing a Sell on the stock. With a return potential of nearly 20%, the stock’s consensus target price stands at $209.30.
Amazon Poised for More Growth Come 2018 on AWS and Whole Foods
Amazon.com stock has already shot up 58% year-to-date thanks to e-commerce shipments sustaining 25% gains, a benefit from a lifted base and strength in Amazon Web Services (AWS) sales. Keep in mind, this is likewise an e-commerce king whose profitability has rocked 40% year-over-year.
William Blair analyst Ryan Domyancic certainly has paid attention to what has been a solid year for the company, anticipating that for this year, worldwide paid units will have surged 26% as customers grow towards 10%. As far as the analyst sees the bigger picture, bumped up customer frequency, or what Domyancic deems “greater wallet share” has been a catalyst for unit gains.
As such, the analyst reiterates an Outperform rating on AMZN stock without suggesting a price target. (To watch Domyancic’s track record, click here)
Amazon Prime has been a heavyweight player for the company, as Domyancic notes, “We attribute the frequency gains to increasing Prime-eligible selection, continued growth of Prime members partially supported by the introduction of a month-to-month membership option, and growth of ancillary services that drive e-commerce frequency, such as Prime Now, Prime Video, Alexa-enabled devices, and dash buttons.”
Moreover, “For the e-commerce business in 2018, we expect Amazon to capture nearly half of incremental e-commerce spend in the United States, consistent with past years. Our conversations with third-party sellers indicate that other marketplaces have not gained share against Amazon, supporting our bullish stance,” the analyst writes, finding that the “most interesting” retail business driver of all next year points to the e-commerce king’s Whole Foods strategy.
This year already had high expectations, and AWS really “delivered,” especially as sales are forecasted to be on a 42% year-over-year increase, although under last year’s 55%. Even with fierce rivalry of the likes of Microsoft and Google bringing fierce competition from price cuts to robust gains, Amazon’s competing service of AWS kept up operating margins circling 25%, aligning with last year’s results.
While Whole Foods may be the “most interesting” for Domyancic, the “most important driver” award for AWS goes to Amazon’s shift to the public cloud, which the analyst projects generates under 10% of overall IT spending, notwithstanding communication services.
Glancing at the bigger picture, “Given the clear advantages of the cloud model in the areas of total cost of ownership, time-to-value, and organizational agility, we believe this signals that the market is in the early innings of a secular transition and believe market leader AWS will be a benefactor,” Domyancic surmises.
TipRanks shows Wall Street bulls heavily back this online auction and e-commerce leader, with 32 analysts in the last 3 months rating a Buy on Amazon stock and just 1 maintaining a Hold. The 12-month average price target stands at $1,280.80, marking 10% upside from where the shares last closed.