Technology
Despite Volatility, SunTrust Positive on Top Internet and Digital Media Stocks
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It was inevitable that sooner or later the huge run in the FANG stocks would be disrupted, and Facebook was the main culprit when it disappointed on almost every metric and the stock was absolutely crushed. Toss in the external issues such as privacy concerns, and many investors basically threw in the towel on the sector. The fact remains that social media and the internet will remain ubiquitous, and money will still be made.
A new research report from SunTrust notes that the second-quarter earnings reporting season was one of, if not the most volatile earnings season in recent memory, and while the need for some companies to right their proverbial ship is evident, there is still a huge opportunity.
Five companies remain as favorite large-cap play, and all are rated Buy at SunTrust.
Alibaba
This red-hot momentum play has continued to be among the most bought tech companies on Wall Street. Alibaba Group Holding Ltd. (NYSE: BABA) runs the largest retail marketplaces (Taobao, TMall) and leading B2B sites (Alibaba.com, 1688.com) in China and Lazada in Southeast Asia. It collects revenues mainly from commissions, marketing services, subscription fees, cloud computing and software, as well as other value-added services.
The company has gone beyond e-commerce and developed into a sophisticated new type of conglomerate in the cyber-era with e-commerce as the base for the rest of the four businesses: logistics, finance, data-computing and cross-border infrastructure. Top analysts expect a whopping 24% compounded annual growth rate between now and 2018 for e-commerce in China.
The SunTrust price target for the stock is $215, while the Wall Street consensus target price is $254.43. The stock closed most recently at $187.23 per share.
Alphabet
The technology giant continues to expand, and while search is still king, the cloud presence is growing fast. Alphabet Inc. (NASDAQ: GOOGL) is a global technology company focused on key areas, such as search, advertising, operating systems and platforms, enterprise and hardware products. It generates revenue primarily by delivering online advertising and by selling apps and contents on Google Play, as well as hardware products. The company provides its products and services in more than 100 languages and in 190 countries, regions and territories.
Alphabet offers performance and brand advertising services. It operates through Google and Other Bets segments. The Google segment includes principal internet products, such as Search, Ads, Commerce, Maps, YouTube, Apps, Cloud, Android, Chrome and Google Play, as well as technical infrastructure and newer efforts, such as virtual reality.
The company blew out earnings numbers, and with a wide and bountiful silo of products and services, the stock remains almost unchallenged. It should be noted that traffic acquisition cost relief drove 20% gross profit growth despite heavy cloud infrastructure and YouTube content investment.
SunTrust has a $1,370 price target for the shares, and the posted consensus target is $1,367.96. The stock closed Tuesday’s trading at $1,227.22.
24/7 Wall St.Amazon
This absolute leader in online retail and a dominant player in cloud storage and computing business absolutely blew out second-quarter results. Amazon.com Inc. (NASDAQ: AMZN) serves consumers through retail websites that primarily include merchandise and content purchased for resale from vendors and those offered by third-party sellers.
The company serves developers and enterprises through Amazon Web Services, which provides computing, storage, database, analytics, applications and deployment services that enable virtually various businesses. AWS is also the undisputed leader in the cloud now, and many top analysts see the company expanding and moving up the enterprise information value chain and targeting a larger total addressable market.
Amazon’s AWS is expected to be the big winner in the U.S. Department of Defense’s new $10 billion JEDI cloud project. Based on conversations with customers and partners serving various U.S. government agencies, many on Wall Street feel that AWS is best-positioned to win the lion’s share of the contract, given its leadership position in the federal government vertical and the apparent success of its big CIA cloud contract.
Note that the $2,000 SunTrust price target is less than the analysts’ consensus estimate of $2,083.24. The shares closed trading at $1,777.44 apiece on Tuesday.
Expedia
This online travel leader is poised for a potentially big second half of 2018. Expedia Inc. (NASDAQ: EXPE) is the leading internet travel pure-play with exposure to online travel in the United States, Europe and Asia. The company’s portfolio of brands includes Expedia, Orbitz, HomeAway, Travelocity, Hotels.com, Trivago, Egencia, Hotwire, Wotif, Venere and Classic Vacations.
Top analysts see it as a story of improving execution, and they also think that the company is starting to finally match Priceline’s growth metrics. The company has raised the dividend and is buying back stock, and both are shareholder friendly actions. In addition, Expedia posted huge second-quarter results that blew past Wall Street expectations.
Expedia investors are paid a 0.9% dividend. The massive $180 SunTrust target price compares with the $150.83 consensus price target and the most recent close at $133.84 per share.
The huge social media leader has been incredibly volatile since posting absolutely horrible results. Facebook Inc. (NASDAQ: FB) is the largest social network with over 2.0 billion monthly active users and over 1.4 billion daily active users. The company generates revenue from advertising and from payments, with over 95% of revenue from advertising. It generates close to 50% of revenues in the United States and Canada and is expanding rapidly in international markets.
Its solutions also include Instagram, a mobile application that enables people to take photos or videos, customize them with filter effects, and share them with friends and followers in a photo feed or send them directly to friends; Messenger, a messaging application for mobile and web on various platforms and devices, which enable people to reach others instantly, as well as enable businesses to engage with customers; and WhatsApp Messenger, a mobile messaging application.
Despite the terrible earnings results and metrics, which caused the shares to sell off a stunning 20%, a remarkable 60% of small businesses use Facebook’s advertising platform to expand their reach. The ability to grow that number is a huge forward positive for the beleaguered social media giant.
SunTrust has set its price target at $200. The consensus target was last seen at $212.30, and the shares closed trading on Tuesday at $172.58.
Despite the recent volatility, especially associated with Facebook, social media and the popularity of the internet aren’t going anywhere, and while recent issues like privacy need to be addressed and resolved, you can bet that investors will continue to buy the sector’s large cap leaders.
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