Nomura Bullish on Alphabet, Facebook, Spotify: 'Still Some Room For Growth'

Nomura isn’t discouraged by a slowdown in global internet user growth.

“Overall, we think there is still some room for growth in digital advertising for the foreseeable future,” analyst Mark Kelley said in a note initiating net positive coverage of the internet space.

The Ratings

Nomura initiated coverage of the following equities: 

• Alphabet Inc GOOGL with a Buy rating and $1,400 target;
• Facebook, Inc. FB with a Buy and $228 target;
• Spotify Technology SA SPOT with a Buy and $210 target; and
• Twitter Inc TWTR with a Reduce rating and $31 price target.

Nomura assigned Neutral ratings to Netflix, Inc. NFLX ($370), Snap Inc SNAP ($13), Trade Desk Inc TTD ($87), Criteo SA (ADR) ($34) and Pandora Media Inc P ($8).

The Social Media Thesis

Contrary to general perception, Nomura expects regulation to strengthen Google and Facebook.

“With large audiences already in place, the large platforms (Google and Facebook, in our coverage) are best-positioned, in our view, and we expect the newly regulated industry to embolden these incumbents, consistent with recent history (parallels to Dodd-Frank),” Kelley said. (See the analyst's track record here.) 

Recent underperformance relative to internet peers, coupled with low Street confidence, means the pair are set for big returns, the analyst said. 

Twitter investors may soon reach a point of overvaluation, Kelley said. 

“We view Twitter as a unique platform that is a stable long-term asset that has something for everyone, but we believe the market is pricing in a significant advertising reacceleration that implies a shift in ad spend,” the analyst said.

“We expect stability instead of a reacceleration of growth.”

The Streaming Thesis

At the same time, the market has yet to appreciate Spotify’s advertising business, Kelley said. 

By the analyst's assessment, the streaming platform has taken the lead among music rivals and fended off competition from major tech players.

The same competitive environment will stunt Pandora and, in video streaming, the growth of Netflix, the analyst said. 

Price Action

At the time of publication, Pandora was up 1.36 percent; Google was up 0.88 percent; Spotify was up 1.2 percent, Netflix was up 0.6 percent, Facebook was up nearly flat; Twitter was up 0.48 percent, Snap was up 0.4 percent, Trade Desk was down 0.87 percent and Criteo was down 0.29 percent. 

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