The team at Merrill Lynch makes many sector calls, one of which is a fresh look at the mobile Internet space. The team says that high mobile usage is bringing upside surprises, and the mobile exposure remains the current number one Internet theme.
This report has many names in it, some winners and some losers, but we have focused on the firm’s top picks of the lot. In fact, the team points out comScore data showing that mobile is now 62% of total U.S. Internet time.
Merrill Lynch’s group of winners is based on companies with the strongest traction on mobile platforms that are best positioned to have upside surprises over the next year or so.
Merrill Lynch’s top large cap pick rated as a Buy in the mobile space is Facebook Inc. (NASDAQ: FB), followed by TripAdvisor Inc. (NASDAQ: TRIP).
Facebook was represented as having proven the transition (to mobile) can work, with 59% of ad revenue now on mobile. Facebook shares trade at $59.83, against a 52-week range of $22.67 to $72.59, and with a $153 billion market cap.
The call shows that TripAdvisor is launching an instant booking feature in the second quarter that may lift mobile monetization rates. TripAdvisor’s shares trade at $89.51, against a 52-week range of $54.81, and its market cap is $12.7 billion. The Merrill Lynch target prices are $84 on Facebook and $107 on TripAdvisor.
Pandora Media Inc. (NYSE: P) was listed as a top pick in the small to mid cap space. The team at Merrill Lynch said that Pandora’s mobile monetization rate continues to grow with mobile monetization at $37 in the first quarter — a gain of 67% from $22 a year ago — and keeps moving closer to the PC level of $54. Pandora trades at $23.98, in a 52-week range of $13.95 to $40.44. The Merrill Lynch target price for the stock is $39.
OpenTable Inc. (NASDAQ: OPEN) was also listed as top pick in the small to mid cap space. It has a high reservation exposure on mobile devices (about 40% of North America) and early signs of improving mobile conversion rates. One thing mentioned on the flip-side is that mobile reservations are not necessarily incremental reservations for OpenTable, and the analysts would like to see the company make progress in this area. Trading at $69.66, it has a 52-week range of $59.65 to $87.48. Merrill Lynch has an $87 price target for OpenTable.