Estimates for internet companies’ earnings continue to ratchet lower and lower—with a couple of noteworthy exceptions in e-commerce and content streaming.
Wednesday morning, J.P. Morgan internet analyst Doug Anmuth cut estimates for most of the companies he covers in the face of the expanding impact from the coronavirus pandemic. Anmuth concedes that his revisions “are our best guess at the current time,” and that had he done this a week ago, “it would almost certainly not have been by enough.”
He’s assuming two quarters of contracting gross domestic product in the U.S. and Europe, with the heaviest pressure in the second quarter, a slightly better third quarter and “lingering impact” into the fourth quarter. He cut estimates and target prices Wednesday on two dozen companies, a list that includes most major internet brands.
Anmuth’s biggest cuts are for online travel agencies like
(TRVG), with businesses in those sectors likely to be down as much as 50% year over year in the next few quarters. While the group’s shares are already down 40% through Tuesday, he says that the downside risk remains elevated.
Anmuth says ride-share companies
(KLFT) are almost as vulnerable, with 40%-50% declines in rides in major U.S. cities. He cut his target prices to $32 from $51 for Uber, and to $44 from $85 for Lyft.
Local online companies like
(ANGI) “will also be hard-hit as [small- and medium-size businesses] suffer during the current lockdown and in an overall weaker macro environment.”
Meanwhile, online publishers like
(TWTR) “may benefit from increased engagement near-term, but materially softer macro could ultimately weigh on marketer spending, likely with some lag effect as we saw in 2009.”
He writes: “As marketers get hit during COVID-19, we expect ad spend to be at the forefront of cost-cutting, with online campaigns and typically always-on spend easily altered relative to TV/radio as marketers re-adjust their budgets. High ROI and measurability should help the leading ad platforms, but consumers ultimately have to be willing to click and spend.” He cuts his targets to $1,340 from $1,535 for Alphabet stock, to $225 from $255 for Facebook, and to $35 from $44 for Twitter.
He does see some bright spots. E-commerce companies—like
(CHWY) — will benefit as closings of physical stores and fear of public places accelerate the secular shift to online retailing. He thinks that shift “will prove sustainable even after the crisis ends.”
At the start of the year, the analyst’s best ideas were Amazon and Facebook—and he says that remains the case today. Amazon is one of the few companies for which he is raising estimates with his new report, and he leaves his target price in place at $2,525.
“Amazon is serving as an important source of food, cleaning supplies, and other essential household items as physical stores are closing and people increasingly avoid public spaces,” he writes. “Amazon has indicated it has seen a significant increase in demand, and it will also add 100,000 positions across fulfillment centers and its delivery network.”
He says Amazon will gain incremental market share of both overall retail and online retail in a downturn, as it did in the 2008-09 period. More than 9,000 physical stores closed in 2019, he notes, and the projections for 2020 are for closures of more than 15,000 stores. “We believe some physical stores will simply not re-open following COVID-19,” he writes. “Amazon is not only the primary beneficiary, but also the best operator and best positioned across our sector for the long term in our view.”
As for Facebook, he says the social network’s revenues “will likely come down over the next couple quarters due to macro impacts,” but that “the benefits of large scale and high ROI will make FB (and Alphabet’s Google) relatively more resilient, with marketers pulling back on other online publishers first. Facebook also under-indexes on online travel spending, which is ~9% of total online advertising in the U.S. and likely getting cut most in the current environment.” He adds that at the current price, Facebook shares are “simply cheap.”
Almost every internet stock was trading dramatically lower in Wednesday’s downdraft, but with a few noteworthy exceptions. Chewy rose 7.7%, Amazon slipped 1.4%, and Netflix fell a relatively modest 3.6%. The
was down 7.8% in recent trading, while the
slid about 7%.
Write to Eric J. Savitz at [email protected]
Website of source