Brexit Adds Risk for (FB) (NFLX) (AAPL) (TRIP) (WWE) - Needham & Company
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Rating Summary:
46 Buy, 17 Hold, 2 Sell
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Today's Overall Ratings:
Up: 11 | Down: 11 | New: 43
Rating Summary:
46 Buy, 17 Hold, 2 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 11 | Down: 11 | New: 43
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Needham & Company analyst, Laura Martin, weighed in on the Brexit impact for Entertainment & Internet stocks under coverage. :
For Internet names, Brexit adds risk and uncertainty to their revenue growth rates, profit projections & valuation multiples.
For media names, THEY recommend companies that have a larger portion of their revenue from US demand and denominated in US dollars (ie, CBS, SNI, FOXA). These should outperform companies with large exposure to European demand fundamentals and currency translation risk as the US dollar strengthens (ie, DISCA, VIAB, NLSN, SCOR).
- Of Facebook’s (NASDAQ: FB) 1B daily users, only 200mm are in the US. Brexit adds risk to monetization fundamentals outside the US, especially when translating those revenue streams into a strengthening US dollar. Valuation multiple risk: Because FB trades at 12x 2016E revenue, as revenue estimates fall owing to European demand slowing OR currency translation issues, this has a heightened negative impact on FB’s valuation.
- Netflix (NASDAQ: NFLX) is also at risk because all of their growth story and capital investment is offshore, and if either demand or currency translation slow their growth, their multiple is priced for perfection. Valuation multiple risk: Because Netflix trades at 82x 2016E EBITDA, as profit estimates fall owing to European demand slowing OR currency translation issues, this has a heightened negative impact on Netflix’s valuation. Netflix can move down 15% in a day when they underdeliver estimates.
- Apple (NASDAQ: APPL) earnings impact is negative as new phones sold are the primary driver of the share price and the Europeans may push off their iPhone upgrades by 12 months if the UK and/or the EU go into recession. AAPL has little valuation multiple risk because it trades at only 5xEBITDA and a P/E of 11x.
- TripAdvisor (NASDAQ: TRIP) is at risk because most investment dollars in their core product are in Europe and the IRR will be pushed out. Also, they bought LaFourchette (the OpenTable of France) and an events company about 2 years ago, and demand for both offshore may fall if the EU goes into recession. TRIP is spending a lot of money to expand into Europe at a time when Europe appears about to fall off a cliff. Valuation multiple risk: Because TRIP trades at 21x 2016E EBITDA, as profit estimates fall owing to European demand slowing OR currency translation issues, this has a heightened negative impact on TRIP’s valuation.
- World Wrestling Entertainment (NYSE: WWE) has a locked in 5-year deal with Sky in the UK, so the risk to WWE is confined to the fact that the monthly payments they get from Sky translate into lower US dollars. In addition, if the UK and EU go into recession, demand for WWE’s $10/month OTT Network might weaken, which could hurt the stock.
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