Four companies in the internet and interactive entertainment sectors offer particularly “compelling” opportunities in the wake of second-quarter financial results, according to new research.
Those companies— Alphabet (GOOGL), eBay (EBAY), Twitter (TWTR) and Zynga (ZNGA), according to UBS analysts, writing Friday—could all offer attractive returns over the next 12 months. Here’s why:
• Alphabet: “Quarter-to-quarter volatility remains a possibility given the moving pieces, we take a long term structural view that Alphabet is a unique collection of harvesting/fostering growth in its core operation at healthy margins and free cash flow and redeploying excess cash flow into a series of long-term opportunities.”
• eBay, which has fallen: Investors, they wrote, seem to believe that “the market isn’t pricing in any potential” for planned product and marketing improvements to boost operating results. Barron’s Jon Swartz covered eBay’s results in July.
• Twitter: The company, the analysts wrote, “has shifted its user engagement and product development to a healthy narrative,” the analysts wrote. “Its ad business (low pricing, strong impression growth, & shift to video) can support multiyear growth and incremental revenue growth should drive improved gross and Ebitda margins and free cash flow.” (Here’s some recent coverage of post-results Twitter from Barron’s Next.)
• Zynga: Investors should benefit if new titles from the mobile gaming company perform well, the analysts wrote, and management is “earning a reputation as prudent allocators of capital (now with a solid track record of mixing buyback activity and M&A to strike a balance aimed at equity value creation).”
Alphabet and Twitter are Barron’s Next 50 companies. Alphabet, UBS noted, was the only company to post gains through August 9 since reporting Q2 results. UBS has “buy” ratings on all four stocks.