eBay Inc. (NASDAQ: EBAY) is starting out 2013 very close to its 52-week high. The company continues to dominate online auctions hands down, but the real value is in the PayPal and transactions unit. Investors have a hard time judging eBay now due to a perception that every person who will auction things already has signed up. Prior changes in customer and merchant service fees have also not been popular. Still, with the stock close to a 52-week high and not far from an all-time high, it is hard to say much bad about the company at all.
eBay trades at $53.50, its 52-week trading range is $29.89 to $53.70 and its market cap is $69 billion. Our area of concern is that eBay’s consensus price target of $56.03 leaves an implied upside of less than 5%. eBay trades at about 19.5-times expected 2013 earnings.
With Google Inc. (NASDAQ: GOOG) being the king of search, we wanted to start there. Google still has approximately 67% of the online search market. In the past this had been more than 70%, but its dominance is still very much present. What is transforming Google is its Android operating system for smartphones and tablets, and now for little netbooks, on the heels of its Motorola buyout. Google shares bounced handily after a disappointing earnings report and fears about the online ad market, even after the mobile ad cannibalization, have so far been seriously overblown. Shares are now near a 52-week high again, and Wall St. remains very favorable, even with leadership questions being present.
Google shares trade around $735, with a $214 billion market cap and with a 52-week trading range of $556.62 to $774.38. Analysts have a consensus value of just over $800.00, for upside of only about 9%. Google trades at close to 16-times its expected 2013 earnings.
Facebook Inc. (NASDAQ: FB) ruined about as many investors after a sham of an IPO as it has marriages. That was then. The social networking giant finds itself in a much more favorable outlook at the start of 2013 than it did even a few months ago, and its key lock-up expirations have mostly been seen. Facebook’s biggest challenge had been how it will capitalize off of (and avoid cannibalization from) mobile use, but Wall St. is now looking more supportive than ever. Facebook has the chance to be one major search contender if it chooses to, and the lower dependence upon Zynga Inc. (NASDAQ: ZNGA) will help its social gaming efforts in the long run. Facebook has a rabid base of users, and those users seem to have unlimited time that they are willing to “like” their Facebook efforts.
Facebook shares rose at the end of 2012 and have so far added to the gains in 2013. Shares are now at $29.42, and the stock has a post-IPO trading range of $17.55 to $45.00. Its market value is $63 billion and the consensus price target is now becoming closer and closer at $31.89. Analysts have upgraded the stock, but as of now this consensus target implies upside of only about 8.4%. Facebook trades at close to 45-times its expected 2013 earnings.
IAC/InteractiveCorp. (NASDAQ: IACI) is perhaps the forgotten Internet company. This $4 billion Web property gets very little love and respect from Wall St. because it is such a smaller competitor and it is considered a hodge-podge of Web properties. It has media, shopping and the Ask.com search engine, and that search is said to be the glue that keeps it together. Its Ask.com is still one of the largest search engines running, at number four in most rankings, but it is incredibly small when compared to Google and even compared to Microsoft along with Yahoo! Its own efforts to become a content destination have been met with a mixed reception, and the stock chart shows no real read either way at the start of 2013. What is amazing is that the company has grown without many investors paying attention.
IAC/InteractiveCorp shares trade at $46.00, and its 52-week range is $40.87 to $55.57. Analysts have a consensus value of just over $60.00, for an implied upside of close to 30%, and IAC trades at only about 12-times earnings. Is this a Web value stock in the making?
LinkedIn Corp. (NYSE: LNKD) has refused to suffer under the backlash of rival Facebook, and shares are holding up very well so far as 2013 gets underway. The challenge that faces LinkedIn is how to keep its more professional users active and how to win with job search functions. The social networking site has made a solid and steady effort that seems to be paying off, with op-ed pieces and serious content from some of the greatest names in business. That may end up being a new line of business. One serious criticism sure stood out from James O’Shaughnessy in Fortune, who said that no matter how he cuts the numbers he cannot make a P/E of 600 and valuation of over 12-times sales look good.
LinkedIn trades at $113, with a $12 billion market cap. The public company is now over a year old, and its 52-week trading range is $61.90 to $125.50. Analysts have a consensus value of $136.68, implying upside of about 21% if they are right. LinkedIn trades at close to 90-times its expected 2013 earnings.
Microsoft Corp. (NASDAQ: MSFT) is still arguably an Internet company. Despite the company’s efforts it seems that its only valuation is based around its software sales, as far as Wall St. and Main Street are concerned. Windows 8 is not entering 2013 very well, as noted by Stern Agee in a cautious outlook. It was very surprising that Microsoft was tallied up as the Dow Jones Industrial Average component with the most upside in 2013. Does that mean that a disappointment is in the making? Maybe not, particularly if you tally up the billions and billions of cash that it has. How Microsoft will work with Yahoo! is both an opportunity and a threat ahead.
Microsoft trades at $26.69 and is valued at barely nine-times its expected 2013 (June year-end) earnings. Its market capitalization is $225 billion and its 52-week trading range is $26.26 to $32.95. Analysts have a consensus value of $34.44, implying upside of about 29%. This feels like it is a set up for disappointment, but the flip side is that with a cash arsenal of $70 billion or more it could be the surprise winner of 2012.
Web.com Group Inc. (NASDAQ: WWWW) finds itself in a very interesting place going into 2013. The online Web hosting and domain hosting provider has advertised aggressively to win new business, as many small businesses have to create a Web presence. With the rise of so many accidental entrepreneurs in recent years, this has been new fertile ground for Web.com. The addition of Network Solutions from VeriSign has been another big boost for Web.com, and it seems as though Wall St. analysts have not properly factored in the earnings and revenue power that this will add through time. This acquisition was a game changer by our take, and new services in Web development, hosting and other services is turning Web.com into a serious destination for website owners.
At $15.58, the 52-week range is $10.54 to $19.72 and the market cap is $737 million. At 10-times current earnings and at just under eight-times expected 2013 earnings, we feel that Wall St. has not caught up to the Web.com story. We see this company as another long-term beneficiary of the consolidation (M&A) phase. With a consensus price target of $21.82, analysts see upside of just over 40% in Web.com.
Yahoo! Inc. (NASDAQ: YHOO) had a full shareholder recovery under new CEO Marissa Mayer, but now the company has to begin to execute on its strategy. Mayer probably has another three months before Wall St. will demand to see increasingly better results. We only say this because the shares rose by more than one-third from the summer lows to the peak above $20. Mayer has delivered on her promise to monetize the stake in Alibaba in China, and there is hope that more monetization from that may be seen, or from the Yahoo! Japan stake. Microsoft Corp. (NASDAQ: MSFT) may represent the biggest opportunity, but it also may represent the largest challenge. Yahoo! looks as though it will be a content destination rather than stepping backwards to become a search and aggregation destination.
Yahoo! trades at $19.40, but it has lost some momentum after closing at $20.08 and peaking at $20.32 for its 52-week high on the first trading day of 2013. The company has a $23 billion market cap, and we would caution that analysts have a consensus price target of only $19.66 after a fresh downgrade by Bernstein on valuation. Yahoo! trades at about 17-times current and forward earnings expectations.
As you might have expected, there is an ETF for that! The First Trust Dow Jones Internet Index (NYSEMKT: FDN) ETF trades at $40.60, but note that it hit a 52-week high, and that the 52-week is now $40.67. We would also note that the volume of almost 2.4 million shares seen this past Monday was basically twice as active as the three busiest trading days of 2012 in this ETF.
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