RBC Capital analyst Mark Mahaney provided his insights on internet stocks Alphabet Inc (NASDAQ:GOOGL) and Netflix, Inc. (NASDAQ:NFLX) following the Brexit, explaining the implications for each. The analyst highlights long-term growth opportunities for both and believes the pullback caused by Brexit represents a compelling entry point for shares.
Mark Mahaney is ranked #9 out of 3,967 analysts on TipRanks. He has a 57% success rate recommending stocks with a 17.1% average return per recommendation.
The analyst notes that the Brexit caused the 13 large cap U.S internet stocks to fall a median of 4.08%. Mahaney notes this decline represents a compelling entry point, reassuring investors of the companies’ growth potential. He states “the Brexit shock has likely created some compelling Buy opportunities among some of the highest quality Internet stocks, especially NFLX, PCLN, GOOGL, and EXPE.” While the analyst notes that the Brexit will have a negative effect on the U.K economy, as well as depreciation in the Sterling, the Euro, he “[views] the technical backdrop for equities as positive.” He explains, “We do believe that the current low-growth environment (more likely in the wake of Brexit), does create greater leadership opportunities for ‘Stable Growers”.”
Due to the slight pullback following the Brexit, Mahaney believes that the markets underestimate the growth potential of internet stock leaders. The analyst notes that the market is not accurately accounting for impressive growth metrics of these stocks, including Google’s 20% y/y ad revenue growth for 17 straight quarters. In fact, Mahaney states that this rate has actually accelerated in the past year. The analyst continues to praise the strengths of internet giants. He states, “At a high level, we believe that these companies are benefitting from extraordinarily large secular growth opportunities, large scale, dramatic data competencies, deep competitive moats & seasoned management teams.” Regarding Google and Netflix, the analyst sees significant upside potential in Google’s new market opportunities and Netflix’s international expansion efforts.
The analyst comments on Alphabet following the Brexit. He notes that Friday’s closing stock price, $685, represents a compelling entry point for shares. While Google may take a harder hit than Netflix due to the Brexit, as the U.K represents 9% of revenues, he believes the strong core fundamentals should result in long-term growth. The analyst believes that the market is focusing too much on the company’s recent revenue growth deceleration, and not enough on the “positive growth impact” of YouTube and Google Play. Similarly, the analyst points to “developing monetization opportunities” for Google Maps, Desktop Search, and Expanded Text ads, as well as benefits of its shift to mobile internet. He explains further, “We believe Alphabet remains one of the best portfolio plays on the biggest Internet trends: the Mobile/Multi-Screen shift, TV ad budgets migrating Online, Video, the Internet of Things, etc…”
The analyst reiterates an Outperform rating on Alphabet with a $1000 price target.
According to TipRanks statistics, out of all the analysts who have rated the company in the past 3 months, 97% of analysts gave a Buy rating while 3% remain on the sidelines. The average 12-month price target for the stock is $911.27, marking a 34% upside from where shares last closed.
Due to recent surveys and management meetings, the analyst states that “the NFLX fundamental growth story is very much-intact.” He explains, “Netflix still offers a highly attractive global customer value proposition, a highly experienced and innovative management team, material profitability potential, and an increasingly strong competitive position.” The analyst predicts GAAP EPS to reach over $10 in 2020, which should result in a 50% increase in the stock price in the next 3 years. Although the U.K represents 5% of revenues, and the rest of Europe represents 20%, the analyst points to the U.S recession as an example that Netflix’s “consumer value proposition” can persevere in tough economic times. In fact, Mahaney believes that the company’s international expansion efforts make Netflix the largest 2016 Greenfield revenue opportunity of all the large cap stocks.
Mahaney reiterates an Outperform rating on Netflix with a $140 price target.
According to TipRanks, out of all the analysts who have rated NFLX in the past 3 months, 64% are bullish, 7% are bearish, and 29% remain neutral. The average 12-month price target for the stock is $120.12, marking a 41% upside from where shares last closed.