Forget FANG, Look at BAGEL in 2016
FANG, the acronym for Facebook (NASDAQ: FB), Amazon (NASDAQ: AMZN), Neflix (NASDAQ: NFLX) and Google (NASDAQ: GOOGL), was the trade of the year for 2015, rising an average 81%. However, top Internet analyst Mark Maheney from RBC Capital has some new predictions for 2016: BAGEL.
"With economic growth scarce, investors should favor secular growth ideas," Mahaney said. "And Large Cap ‘Net has several of these: AMZN, BABA, EXPE, FB, GOOGL, LNKD, NFLX, PCLN. These companies are benefitting from extraordinarily large secular growth opportunities, massive scale, dramatic data competencies, deep competitive moats, significant strategic options & seasoned management teams – which leads to consistent, premium top-line growth (20%+). Execution risk is falling, not rising. And some of these names have created enormous new market opportunities (AMZN with AWS), are on the verge of creating enormous new market opportunities (GOOGL with AV), or are soon to tap into very large new monetization veins (FB with Messaging, EXPE & PCLN with Alternative Accommodations, BABA with Mobile, LNKD with Engagement, and NFLX with International). Compelling stock prices? We don't think so. Compelling company fundamentals? We think so
The analysts' 10 Key ‘Net Growth Factors For 2016:
(1) Mobile Materiality: Top trend, Mobile has now surpassed 25% of usage, revenue, bookings, etc. (Best derivatives: P, FB, TWTR, GOOGL, YELP, ZG).
(2) Social Ubiquity: FB has more monthly users than China, and we’re unlikely to hit a wall anytime soon (FB, TWTR, LNKD).
(3) Online Migration Of TV Ad Budgets: Consumers continue to spend more time Online, and where consumers are, TV Ad Budgets will follow (GOOGL, FB).
(4) Rise Of The Programmatic Ecosystem: We’ve reached the tipping point from traditional media buying to Programmatic, which accounted for $18B of spend in ’15 (GOOGL, CRTO, RUBI).
(5) Same-day Delivery Surge: CPG sector remains in sight as companies like AMZN (with 8th gen fulfillment centers) continue to “shorten the driveway” (AMZN).
(6) Cloud Computing Critical Mass: A material revenue stream for several ‘Nets, principally AMZN, but also perhaps GOOGL (AMZN, GOOGL).
(7) Cash Pile Up And M&A Fever: As the large ‘Nets have grown, so too have their cash (and equity) balances. This has led to both more acquisitions (WhatsApp, KING, AWAY) and more cash returned to investors (GOOGL, PCLN). (GOOGL, BABA, AMZN, YELP).
(8) Unicorn Derivatives: Negative impacts include wage inflation, advertising cost pressures, and a general increase in competition. Positively, these (generally) well-funded companies are prolific advertisers and users of cloud services (FB & AMZN).
(9) FX Headwinds & Tailwinds: Should the USD stabilize or weaken, this could create a tailwind in 2016. Largest International revenue exposure: PCLN, GOOGL, FB, EBAY, TRIP, EXPE, AMZN. &
(10) Rise Of The Sharing Economy: We are seeing a major shift from the purchasing of media products (music, video, games) to the renting/streaming/sharing of those products (NFLX, P).
Top Large Cap Longs For 2016: 1) GOOGL ($880 PT): Has the most identifiable catalyst in the sector – its upcoming segment disclosure will likely highlight Core Google's profitability, lead to cost transparency & support robust SOP valuations. Lastly, GOOGL remains one of the best plays on the biggest Internet trends: Mobile, Video, IoT, etc. 2) AMZN ($775 PT): Revenue growth is accelerating, margins are expanding & the competitive moat is widening... Key drivers are Amazon Prime Flywheels (~50MM U.S. subscribers) and AWS’s super-strong momentum - maybe the most powerful Tech trend today. & 3) LNKD ($300 PT): Each key segment has an identifiable ’16 catalyst. Plus, LNKD faces a large $100B+ TAM and has robust revenue streams, with somewhat rare Margin expansion. EXPE & BABA are #4 & #5.
Top Small Cap Longs: 1) CRTO ($59 PT); 2) YELP ($42 PT); & 3) SFLY ($52 PT). RUBI & TREE are #4 & #5