Longtime internet analyst Mark Mahaney has a new gig at Evercore ISI, where on Monday he and his team launched coverage of three dozen stocks.
Mahaney, who previously spent more than eight years at RBC Capital, and before that 7-plus years at Citigroup, writes that his high-level view is that after materially outperforming the market in 2020, the sector is likely to see some “consolidation” in the short-run, with pockets of outperformance as investors look ahead to 2022. He’s encouraged by what he thinks will be $4 trillion in incremental spending in online retail, travel and advertising between by 2025 due to “ongoing digital disintermediation” of offline businesses.
He thinks the market generally under-appreciates “the permanent pull-forward of demand and the attending scale benefits that the Covid crisis created for several of the leading Internet platforms.” But he adds that “very robust multiples across the sector keep us near-term pragmatic and selective.”
Mahaney and his team started coverage of 36 stocks – that includes 22 with Outperform ratings, and 14 with In Line ratings. In the 90-page presentation reviewing his thinking on the sector, Mahaney lists nine top picks.
Among mega caps, his choices are
(the subject of a bullish cover story in this week’s Barron’s print edition),
and Uber. His large-caps favorites include Spotify,
and Zillow. His top choices among smaller stocks -include Wix, StichFix and GoodRx.
Here in brief are his thoughts on each:
(Ticker: FB): He sees a $1 trillion-plus total addressable advertising market, and notes that the social media giant has four of the most popular apps globally in Facebook, Instagram, Messenger and WhatsApp. He sees “dramatic new monetization opportunities” in WhatsApp, Reels, Marketplace and Social Commerce. “We believe Facebook has a number of properties that are under-monetized relative to their usage,” he writes. “Marketplace for example, could generate up to $3 billion in 2024 revenue,” he writes. His target price is $370.
(AMZN): Mahaney sees huge potential target markets in retail, cloud, advertising, third-party sales and pharmacy. He thinks Amazon has “the best mix shift story in tech,” with faster growing segments – advertising and cloud – offering higher margins than retail. He also thinks Amazon has “the best management team in tech.” And he notes that the stock is trading modestly below historical multiples. Target: $4,000.
(UBER): The analyst notes that Uber has leading positions in nearly every international ride sharing market – and equity stakes in the leading players in China, Russia and parts of Southeast Asia. And he notes that they are the largest player in food delivery outside China. He thinks Uber will see a strong post-Covid recovery in ride sharing – with food delivery “a structural winner” from the pandemic. He likes Uber over Lyft for its international exposure, greater diversification and larger scale. Target: $74.
(SPOT): He notes that the stock is down more than 20% from its recent peak, while “clearly the world’s largest audio streaming provider.” He also points out that Spotify boosted prices in some markets, which he thinks should stabilize average revenue per user and could lead to higher revenue growth. Target: $360.
(PINS): Mahaney sees the company as “a structural winner from Covid with permanent pull forward of ad budgets online.” He also noted that “Pinterest is in the middle of an ad product inflection point,” with new tools and ad formats, that make it “one of the best plays on social commerce.” Target: $97.
(ZG): He thinks the online real estate company is a “structural winner from Covid” given likely permanent adoption of work from home by many and a pickup in home sales. And Mahaney thinks the company is nearing break-even on its iBuyer business. Target: $179.
(WIX): Mahaney thinks this provider of website software for small businesses will be a structural winner from the pandemic, with a market share edge over rivals like Squarespace and GoDaddy. He sees a boost from new services, like payments. Target: $370.
(SFIX): He sees a recovery play as people restock their wardrobes as they begin to resume out-of-home activities. Revenue will accelerate both this year and next year – with a particular boost from a planned move into Direct Buy sales, he says. Target: $78.
(GDRX): The pharmacy information provider will benefit as the economy reopens and physician and pharmacy visits rebound from 2020 levels. “We see GoodRx as the clear market leader in the prescription discount cards space,” he writes. Target: $50.
Write to Eric J. Savitz at firstname.lastname@example.org