'Technology Disruptors And The Future Of The Internet:' Cantor Provides A Look Forward (And Some Ideas For 2015)

In a report titled “Technology Disruptors And The Future Of The Internet” a team of Cantor Fitzgerald analysts look into the online advertising and e-commerce markets and the stocks related to them (the top picks in the segment, their valuations, etc.), “to reflect continued improvement in the U.S. economic environment and the new conditions in Europe.”

The 60+ pages note points out the Top 10 key themes for the Internet in 2015; namely:

1. Mobile overtakes desktop as the browsing platform of choice

2. Programmatic premium ad buying will forever change ad sales as we know them

3. Video and the coming big shift of TV dollars online

4. Is there a tectonic shift in search share away from Google?

5. Why the best is yet to come for online commerce

6. Free shipping becoming the norm; same-day delivery remains the final frontier

7. Will the rise of Omni-channel commerce save incumbents or accelerate their demise?

8. Cash hoarders and the tax reform on foreign profits

9. The rise of the sharing economy where access trumps ownership

10. Winners and losers of net neutrality

Some of these themes will be further developed in future articles. In this particular one, we’ll take a wider look at the prospects of Internet and media. After a very strong 2013, where Internet stocks returned about 50 percent - based on the Cantor Internet Index, 2014 was quite weak, with shares down 8 percent. However, given that the fundamentals of the group over the period did not change all that much, analysts expect returns to normalize in 2015.

“Online advertising grew ~16%Y/Y for both 2013 and 2014, while ecommerce saw a 17% and 16% increase, respectively.” For 2015, Cantor estimates that online advertising and e-commerce “will still show mid-teens growth, implying no material slowdown driven by a) an improving U.S. economy and lower energy prices, both of which are helping drive consumer spending and growth in ad budgets; b) stabilization in some European economies, which should become a tailwind to earnings; and c) continued secular shift to online from offline, given the still low levels of online penetration in both commerce and advertising.” Moreover, they expect ad dollars to “continue to flow online as advertisers chase their audiences with increasingly sophisticated targeting and ad formats. This healthy ecosystem, combined with lowered 2015 expectations (mostly on F/X) and reasonable valuations should drive the group higher in 2015, in our view.”

Best Ideas For 2015

The report also points out a few top growth picks for the coming year. These are Facebook, Inc. FB (BUY, $90PT), Google Inc. GOOGL (BUY, $635PT), and priceline.com Incorporated PCLN (BUY, $1,350).

Some Other Highlights

For 2015 Cantor also expects: mid-teens growth for online advertising budgets, Display to “take the baton from Search to drive future growth in online advertising;” FX to remain a major headwind to year-over-year growth; low penetration, improving economies, lower energy prices and FX to drive e-commerce; the Online Travel industry to grow healthily (about 10 percent year-over-year, about double the pace of the overall travel category); and a potential reform of tax on foreign profits to “boost M&A, dividends and buybacks.”