Canaccord Weighs in on Big F.A.N.G: Facebook Inc (FB),, Inc. (AMZN), Netflix, Inc. (NFLX), Alphabet Inc (GOOGL)

Let’s talk about F.A.N.G a.k.a. four of the internet most popular stocks:, Inc. (NASDAQ:AMZN), Facebook Inc (NASDAQ:FB), Alphabet Inc (NASDAQ:GOOGL), and Netflix, Inc. (NASDAQ:NFLX). Canaccord analyst Michael Graham has been out with a mostly positive forecast for the quarter. However, on three of the four, the analyst reigned in the price target on stocks he has nonetheless hailed as “beacons of growth.”

The big four were all down in market trading on Wednesday afternoon. Even so, the analyst is riding the bullish train for the long-term as he sees these stocks as leaders of the large-cap tech-verse, particularly considering that “three of the FANGs comprise half of the six fast-growing large-cap tech stocks.”

What are the drivers for these tech giants in terms of growth? Graham cites four crucial wave makers: digital advertising, digital video consumption, eCommerce, and cloud services. From where the analyst is standing, the drivers remain “very much intact” and therefore, growth should sustain, and as revenue growth continues to be steady, “investors keep returning.”

As far as Graham sizes up Facebook, Amazon, Netflix, and Google, he asserts, “The FANG stocks have had two very strong years, outperforming the market by a wide margin. The stocks had a more mixed Q3, with more diverse performance following earnings, and a group-wide (short-lived) selloff following President-elect Trump’s victory. We still think these stocks will perform well through 2017, although we recommend fine-tuning relative exposure within the group based on your time horizon.”

Why should you trust Graham’s opinion? According to TipRanks, five-star analyst Michael Graham is ranked #241 out of 4,243 analysts. Graham has a 52% success rate and garners 8.6% in his annual returns. When recommending FB, Graham earns 22.9% in average profits on the stock. When suggesting AMZN, Graham gains 7.1%. When rating NFLX, Graham realizes 20.1%. When advising GOOGL, Graham yields 14.0%.

Let’s explore the stocks that make up the crux of the tech court:

Facebook Global User Base Still Growing by 15%- Impressive

With regards to Facebook, Graham sees the social media titan facing the greatest impact now that companies, investors, and regulators alike are choosing to shift focus from non-GAAP to GAAP metrics.

Even so, the analyst advises to buy in light of the titan’s “multi-faceted revenue growth story” which features a well-rounded arc of users, engagement, ad load, ad pricing, as well as newer services.

While there are a couple of risks, from ad load warnings to near-term concerns from advertisers who might be wary of issues with measurement, Graham reiterates a Buy on FB while trimming the price target from $160 to $150, which represents a close to 30% increase from where the shares last closed.

Meanwhile, advertisers are corralling to the platform, to the tune of 4 million as of third-quarter, thanks to global user and monthly active user (MAU) growth as well as some enhanced engagement with “dramatic” possibilities to gain further abroad.

The analyst opines, “We dusted off our 2013 initiation report on FB in which we estimated 2017 ad revenue at $17.6B. Our current estimate for next year is more than double that number at $37.5B, and while we are patting ourselves on the back with one hand for recommending this juggernaut for 3+ years, with the other hand we are scratching our head trying to figure out how we so dramatically underestimated FB’s potential.”

Ultimately, “Investors seem to still be largely focused on revenue for FB, and we continue to be comfortable with the outlook. We are modeling 35% ad revenue growth in 2017, down from 61% in 2016, and we believe this should be easily achievable given the multiple drivers,” Graham surmises.

TipRanks analytics exhibit FB as a Strong Buy. Out of 38 analysts polled in the last 3 months by TipRanks, 35 are bullish on Facebook stock, while 3 remain sidelined. With a return potential of 37%, the stock’s consensus target price stands at $158.03.screen-shot-12-02-16-at-03-20-pm

Amazon Prime Flywheel Presents Buying Opportunity

As the Amazon Prime flywheel fires up eCommerce growth rates and surges in scale and volume drive increases in Amazon Web Services (AWS), Graham likes the prospects for a “manageable competitive environment.”

Therefore, despite awareness of margin pressure and a “price war” brewing for AWS that could prominently shake up margins, the analyst reiterates a Buy rating on shares of AMZN while pulling back on the price target from $900 to $875, which represents a just under 18% increase from current levels.

As the analyst deduces, “Steady growth in eCommerce revenue has been largely taken for granted by investors over the last couple of years, and this is even more true so far in 2016, when eCommerce revenue growth both internationally and domestically has stayed above 26%. This has been the result of excellent execution around selection, price, and fulfillment. More recently, however, management commentary has centered on the ‘Prime Flywheel’ which involves even faster, free shipping and a variety of other services (‘free shipping with Netflix and Spotify thrown in for free…’).”

Guesstimating two-thirds of eCommerce revenue for the online auction and e-commerce leader likely stems from the U.S. coupled with 65% of Prime members, or roughly 43.5 million, in the U.S., out of a projected total of 70 million Prime members from 350 million customer accounts, the analyst likes Amazon’s positioning.

“We believe Prime is the lens through which Amazon management is viewing the company’s opportunity,” Graham postulates.

TipRanks analytics demonstrate AMZN as a Strong Buy. Based on 35 analysts polled in the last 3 months by TipRanks, 33 rate a Buy on AMZN, while 2 maintain a Hold. The 12-month average price target stands at $946.39, marking a 27% upside from where the stock is currently trading.screen-shot-12-02-16-at-03-21-pm

Netflix: One-Two Punch of Original Content Value and International Expansion Possibility

Meanwhile, Graham commends Netflix for its substantial runway ahead in terms of potential development internationally and sees the streaming giant’s original content as key, comparing its importance to the likes of fulfillment for Amazon.

As such, amid concerns of competition, subscriber comp challenges awaiting the first half of 2017, and deficient support for valuation in the short-term, the analyst reiterates a Buy rating on NFLX with a $140 price target, which represents an 18% increase from where the shares last closed.

The analyst notes, “Netflix launched in its first international market (Canada) in 2010. It then launched across most countries in Latin America in 2011 and several countries in Western Europe in 2012. We estimate that the largest single international markets by subscribers are the U.K., Canada, Brazil, Germany, Mexico, and Japan currently.”

Additionally, Graham sees, “Along with these top markets, there are several other opportunities from recent launches and emerging economies. Due to Western Europe’s mature economy and media landscape, we think these markets could ramp faster. Specifically, the Nordics, France, Spain, and Italy all seem poised for greater near-term adoption.”

Overall, “We think Netflix’s international expansion is still very much in the early stages. While the top international markets are at ~12% penetration, layering in newer mature markets and some of the larger emerging one shows that Netflix is still merely in mid-single digit penetration of the total addressable market,” Graham determines.

TipRanks analytics indicate NFLX as a Buy. Out of 37 analysts polled in the last 3 months by TipRanks, 20 are bullish on Netflix stock, 11 remain sidelined, and 6 are bearish on the stock. With a return potential of 5%, the stock’s consensus target price stands at $123.29.screen-shot-12-02-16-at-03-23-pm

Alphabet (Google): Re-Accelerating Website Revenue Key to Success

As Alphabet’s stock has been circling a 40% rise from summertime 2015, Graham is banking on the company’s ad innovation and website revenue growth as key drivers to maintain full confidence ahead. As YouTube’s evolution spirals forward and in face of prospective multiple expansion, the analyst likes the tech giant’s odds over the risk of Mobile, Programmatic, and YouTube applying pressure to gross margins.

Therefore, Graham reiterates a Buy on shares of GOOGL while cutting the price target from $950 to $925, which represents a 21% increase from where the stock is currently trading.

A key to GOOGL’s success lies in its website revenue growth, as the analyst explains, “We believe the most important driver of this move has been the re-acceleration of Websites revenue growth, which progressed from 13% in Q2/15 to 16% in Q3 and 20% in Q4. This important growth rate then stayed well above 20% so far this year, and this is an important psychological level for the stock.”

Moreover, Graham considers, “The likely key driver of this resurgence in growth has been essentially ad load on both mobile search and YouTube (discussed below), with the company adding a third mobile search ad unit that started gaining traction in Q2/15 but really hit its stride in Q3.”

Ultimately, “We estimate YouTube revenue growth will decelerate from 48% in 2016 to 37% in 2017, but at ~15% of Websites revenue next year, this relatively high growth rate is an important tailwind. We estimate that YouTube will be 18% of Websites revenue in 2020. As it grows larger in the mix, its higher growth rate than search revenue should help buoy the overall top-line for many years,” Graham concludes.

TipRanks analytics show GOOGL as a Strong Buy. Based on 27 analysts polled in the last 3 months by TipRanks, 26 rate a Buy on GOOGL while 1 issues a Sell. The 12-month average price target stands at $968.33, marking a nearly 27% upside from where the shares last closed.screen-shot-12-02-16-at-03-22-pm

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