If you asked most Americans if they use the internet on a daily basis, you likely would get an answer strong in the affirmative. Statistics indicate that a remarkable 92% of all Americans have access to the internet (which is up a stunning 75% since 2012) as it has become one of the most versatile and popular tools for communication, information and entertainment in today’s modernized and increasingly global world. The United States ranks third in the world with 307 million users.
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The advent and massive growth of the internet has proved to be a boon for companies seeking the best advertising value for their dollar. Digital advertising that can be targeted right to a company’s specific consumer and demographic, and so much more, has become a gigantic industry. For the top internet companies, and even smaller niche players, it has become a huge cash cow.

A new Goldman Sachs research report includes a deep dive into internet digital advertising, as we are now into the second half of 2023, and some of the top stocks come as no surprise. The report noted this about the state of the industry:

There continues to be a large bifurcation in performance by ad vertical dependent upon the macro environment and consumer demand (incl. for goods vs. services). We continue to see sustained strength within travel, local and omnichannel retail. In addition, the more interest rate-sensitive verticals (including. autos, housing, & financial services), while still under pressure on an absolute level, have proven to be relatively more resilient vs. our expectations in Q2. According to data from Pathmatics, US ad impression growth across Facebook and Instagram continues to be strongest within the retail, travel & CPG categories vs. continued pressure (on an absolute basis) within financial services (a continuation of trends seen in the first quarter of 2023 and the fourth quarter of 2022.

Two of the five stocks the Goldman Sachs team are very positive and come as no surprise, and the three others are also favorites of the analysts. While all are rated Buy, it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

Alphabet

There should be no surprise that the search giant is a top pick, as it is all-in on the AI revolution and remains a very compelling idea, especially at current trading levels. Alphabet Inc. (NASDAQ: GOOGL) provides various products and platforms in North America, Europe, the Middle East, Latin America and elsewhere.

Its Google Services segment offers products and services, including ads, Android, Chrome, hardware, Gmail, Google Drive, Google Maps, Google Photos, Google Play, Search and YouTube. It is also involved in the sale of apps and in-app purchases and digital content in the Google Play store, as well as Fitbit wearable devices, Google Nest home products, Pixel phones and other devices, and in the provision of YouTube non-advertising services.

The Google Cloud segment offers infrastructure, platform and other services; Google Workspace that includes cloud-based collaboration tools for enterprises, such as Gmail, Docs, Drive, Calendar and Meet; and other services for enterprise customers. The Other Bets segment sells health technology and internet services.
Alphabet reportedly is using AI applications in almost all the firm’s central business silos, from ad pricing to content to spam filters. It is also the parent company for software subsidiary DeepMind and autonomous vehicle company Waymo.

Goldman Sachs has a price target for Alphabet stock of $140, which compares with the $133.52 consensus target and Monday’s closing print of $124.65.
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Meta Platforms

The Facebook and Instagram parent remains a social media destination for millions daily, and the stock is the second Goldman Sachs top pick. Meta Platforms Inc. (NASDAQ: META) develops products that enable people to connect and share with friends and family through mobile devices, personal computers, virtual reality headsets, wearables and in-home devices worldwide.

Its Family of Apps segment offers products such as Facebook, which enables people to share, discover and connect with interests; Instagram, a community for sharing photos, videos and private messages, as well as feed, stories, reels, video, live and shops; Messenger, a messaging application for people to connect with friends, family, groups and businesses across platforms and devices through chat, audio and video calls and rooms; and WhatsApp, a messaging application that is used by people and businesses to communicate and transact privately.

The Reality Labs segment provides augmented and virtual reality products, comprising virtual reality hardware, software and content that help people feel connected, anytime and anywhere. Toss in the recent addition of the Twitter-styled Threads, which had a massive launch with over 100 million people signing up, and the wind is clearly behind the company.

Goldman Sachs has set its price target at $335, while Meta Platforms stock has a $296.39 consensus target. Monday’s closing share price was $310.62.

IAC

Internet content and information is growing each year, and this is a great way to invest in it. IAC Inc. (NASDAQ: IAC) operates as a media and internet company worldwide. It publishes original and engaging digital content in the form of articles, illustrations, and videos and images across entertainment, food, home, beauty, travel, health, family, luxury and fashion areas, as well as magazines related to women and lifestyle.

It also operates a digital marketplace that connects home service professionals with consumers for repairing, remodeling, cleaning, landscaping, maintenance and enhancement services under the Angi Ads, Angi Leads and Angi Services brands. The company’s websites offer general search services and information, including Ask.com (a search site with a variety of fresh and contemporary content), Reference.com (offering content across select vertical categories),  ConsumerSearch.com (offering content designed to simplify the product research process) and Shopping.net (a vertical shopping search site that contains a mix of search services and content targeted to various user or segment demographics). It also offers direct-to-consumer downloadable desktop applications.

IAC also offers Care.com (an online destination for families to connect with caregivers for their children, aging parents, pets and homes). It develops and provides subscription mobile applications across the communication, language, weather, business, health and lifestyle verticals. Bluecrew is a technology-driven staffing platform for flexible W-2 work, while Vivian Health is a platform to connect health care professionals with job opportunities and The Daily Beast is a website dedicated to news, commentary, culture and entertainment that publishes original reporting and opinion. In addition, it offers production and producer services for feature films for sale and distribution through theatrical releases and video-on-demand services.

The Goldman Sachs price target is $74, but the consensus target is higher at $83.93. IAC stock closed on Monday at $68.44.

This is one of the lesser-known names that also has huge potential. Pinterest Inc. (NYSE: PINS) operates globally as a visual discovery engine that allows people to find ideas, such as recipes and home and style inspiration, and provides video, product and idea Pins, as well as offers organizing and planning tools.
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The company shows organic recommendations and advertising engine based on Pinners’ tastes and preferences, and it enables Pinners with shoppable product Pins, which include price, color and size that redirect to retailer websites.

With billions of Pins on Pinterest, consumers always find ideas to spark inspiration. When people discover Pins they love, they can save them to boards to keep their ideas organized and easy to find. Individuals can also create Pins to share their ideas with other people on Pinterest.

Pinterest stock has a $32 target price at Goldman Sachs. The $28.78 consensus target is lower than Monday’s close at $29.15.

Yelp

This is another top internet play from the Goldman Sachs team. Yelp Inc. (NYSE: YELP) operates a platform that connects consumers with local businesses globally. The company’s platform covers various local business categories, including restaurants, shopping, beauty and fitness, health and other categories, as well as home, local, auto, professional, pets, events, real estate and financial services.

Yelp provides free and paid advertising products to businesses, which include cost-per-click search advertising and multi-location ad products, as well as enables businesses to deliver targeted search advertising to local audiences. It also offers business listing page products.

The company offers other services, including Yelp Guest Manager, a subscription-based suite of front-of-house management tools for restaurants, nightlife and certain other venues, which include online reservations, a waitlist management solution that allows consumers to check wait times and join waitlists remotely, as well as through hostless kiosks, and seating and server rotation management tools. Its Yelp Knowledge program offers business owners local analytics and insights through access to its historical data and other proprietary content. Yelp Fusion offers free and paid access to content and data for consumer-facing enterprise use through publicly available APIs.

In addition, it provides content licensing, as well as allows third-party data providers to update and manage business listing information on behalf of businesses. Further, the company offers its products directly through its sales force, indirectly through partners and online through its website and business app, as well as non-advertising partner arrangements. It has a partnership with Grubhub for providing consumers with a service to place food orders for pickup and delivery.

The $47 Goldman Sachs target price is well above the consensus figure of $34.63. However, Yelp stock closed 10% higher on Monday at $42.02, likely in part to the solid commentary in the Goldman Sachs report.

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Of course, corporate advertising dollars rise up and down with the economy. While all is seemingly well now, there could be some storm clouds in the distance, as we have yet to see the full effect of the 500-basis-point increase in interest rates. With that caveat in place, advertising on the top internet platforms should continue to grow for years to come.

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