Market Overview

The FANG Is Underperforming, But Fundamentals Are Solid

The FANG Is Underperforming, But Fundamentals Are Solid
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Internet companies have underperformed so far in 2016. JPMorgan's Doug Anmuth pointed out, however, that secular growth and underlying fundamentals of these companies continue to be solid.

JPMorgan's Internet coverage universe is down 13 percent year-to-date on average, versus a 1 percent gain in the SPX. The ad market continues to move towards the online space, driven by mobile, and digital spend is expected to surpasses TV in the US for the first time in 2016, Anmuth commented.

Ecommerce is estimated to be growing at double-digits, with mobile accounting for about 30 percent of online sales. “And we expect travel trends to remain resilient as strong air ticket demand helps offset slower hotel trends & security concerns,” Anmuth wrote. He has Overweight ratings for the FANG - Facebook Inc (NASDAQ: FB),, Inc. (NASDAQ: AMZN), Netflix, Inc. (NASDAQ: NFLX) and Google, or Alphabet Inc (NASDAQ: GOOG), which are scheduled to report their 1Q results shortly.


The price target is at $136. Facebook is scheduled to report its 1Q16 earnings on April 27. Anmuth said the company could report FXN ad revenue growth in the low 60 percent range, which is marginally above the estimate of 59 percent, but a deceleration from 66 percent in Q4.

“There were some 4Q benefits from the mobile commerce spike & DPAs, but we think these drivers will mostly continue. We do not expect FB to change its current +45-55% cash opex guide,” the analyst added.

Related Link: Morgan Stanley Not Encouraged By Twitter's Growth, Lowers Target To $16


The price target is at $822. Amazon FBA-related challenges are unlikely to have continued in Q1, Anmuth commented, while adding that it was possibly a “4Q problem that should be fixed by the holiday season.”

While AWS could lose some of its 85-90 percent public cloud share over time, it should “still be the dominant player in a much larger market,” the JPMorgan report stated. The Q2 estimate has been reduced from $1.72 billion to $1.60 billion, with 40bps of margin contraction, reflecting slightly more near-term risk around AWS forex tailwind reversal and international investment.


The price target is at $139. “Some N-T risk remains around US un-grandfathering, though it is also well-discussed & buy-side estimates for 2Q are likely below the sell-side. It is noise in the context of an ~80M sub base, & we continue to expect a material profit ramp in 2017,” Anmuth mentioned.

The Q2 estimate for domestic net adds has been reduced from 704,000 to 300,000, to reflect near-term sub risk approaching the May 2016 US un-grandfathering. The analyst noted, however, that the price hike is likely to be gradually rolled out in order to minimize disruption.

The long-term view on Netflix remains unchanged, and the company is expected to have 60 million U.S. subs and 100 million international subs by 2019-2020.


The price target is at $968. “Well-owned, yes, but we think expectations are reasonable as we look for similar or slightly higher FXHN gross revs growth in 1Q compared to the 24.4% in Q4 driven by mobile & YouTube,” the report mentioned.

Anmuth expects Google segment margins to grow 100bps in 2016, even on higher spend. While the analyst has modeled forex headwinds to have a -350bps year-over-year impact to the company’s 1Q gross revenue and -200bps impact to 2016 growth, currency trends suggest the impact could be less severe, closer to -250bps in Q1 and +50bps in 2016.

Latest Ratings for FB

Oct 2016Credit SuisseMaintainsOutperform
Sep 2016JP MorganMaintainsOverweight
Sep 2016Loop CapitalInitiates Coverage onBuy

View More Analyst Ratings for FB
View the Latest Analyst Ratings

Posted-In: Doug AnmuthAnalyst Color Long Ideas Reiteration Top Stories Analyst Ratings Tech Trading Ideas Best of Benzinga


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