Jefferies Names Winners For Its 10 Internet Themes

While video and mobile engagement will remain key drivers of the internet industry, fulfillment and logistics may gain more attention due to the continued growth in e-commerce volume, Jefferies’ Brian Fitzgerald said in a report. He highlighted 10 internet themes for 2017.

Internet Themes Of 2017

• Fulfillment/Last-Mile Logistics: The importance of last-mile logistics has been growing with customers increasingly demanding expedited delivery. Amazon.com, Inc. AMZN is the current leader in the e-commerce fulfillment space, and its internal logistics capabilities could disrupt another billion-dollar market going ahead. Fitzgerald named Amazon as the top pick for 2017, noting its “plenty of growth opportunities.”
• Online Advertising: While online video and mobile ads continue to be key growth drivers, Alphabet Inc GOOG GOOGL and Facebook Inc FB may remain the main beneficiaries. AdTech companies may adapt Header Bidding strategies within mobile and video this year. Mentioning that Criteo SA (ADR) CRTO appears well positioned in the space, Fitzgerald named the stock as the top small-cap pick.
• Sponsored By Doritos: Mobile and eSports video games have large audiences and may attract advertising and sponsorship dollars in 2017. Activision Blizzard, Inc. ATVI and Zynga Inc ZNGA could be the main beneficiaries, the analyst said.
• Net Neutrality: “Net Neutrality is setting up to be one of the first casualties under Trump's administration. The repeal of Net Neutrality will likely bring "fast lanes" and will likely be a near term negative,” Fitzgerald wrote, adding that providers such as YouTube, Amazon, Hulu and Netflix, Inc. NFLX may be significantly affected.
• Travel And The Sharing Economy: Sharing economy services address a market segment that is unique, with “moderate overlap with traditional products,” the analyst noted. He added that often sharing-economy consumers generated demand in addition to traditional travel products and that Priceline Group Inc PCLN and Expedia Inc EXPE would benefit from this.
• Rise Of The Bots/Personal Assistant Technology: Amazon and Alphabet are both well positioned for this trend.
• Virtual Reality To Focus On Content: “The conversation around Virtual Reality will shift from the quality of the systems being deployed to the content being released,” Fitzgerald commented, although he does not expect Virtual Reality to approach mass adoption in 2017.
• Autonomous Driving: Significant progress has been made in this space. Alphabet appears well positioned for the long term by partnering with vehicle manufacturers.
• Make America Repatriate Again: Trump's proposed tax holiday on foreign cash could bring $80 billion of capital back to the United States from 27 companies. Alphabet may be the biggest beneficiary.
• Hacking: The frequency and scale of coordinated attacks continued to rise in 2016 and the trend may continue in 2017. “Headlines will highlight personal security, but without a major financial incident, consumer confidence in e-commerce may not contract,” the analyst stated.

Ratings And Price Targets

• Activision: Buy, $55.
• Alphabet: Buy, $1,000.
• Amazon: Buy, $950.
• Criteo: Buy, $66.
• Expedia: Hold, $135.
• Facebook: Buy, $170.
• Netflix: Underperform, $80.
• Priceline: Buy, $1,800.
• Zynga: Buy, $5.