While some of the more negative pundits on Wall Street are saying a bear market is right around the corner, the reality is, even with the slower job growth numbers on Friday, the economy is growing. Bear markets rarely happen when the economy is not in recession. One sector that many think is poised to do very well in the fourth quarter is technology, and in a new research note from Deutsche Bank, Internet stocks are high on the firm’s list.
While the Deutsche Bank team really doesn’t go out on a limb with the firm’s top Internet stock calls, they are one of a very few on Wall Street in the bullish camp for one of the four stocks in the report. All are rated Buy at Deutsche Bank.
This company is the absolute leader in online retail, and it is also a dominate player in cloud storage business and just crushed earnings last week. Amazon.com Inc. (NASDAQ: AMZN) serves consumers through retail websites, such as Amazon.com and Amazon.ca, which primarily include merchandise and content purchased for resale from vendors and those offered by third-party sellers. In addition, the company serves developers and enterprises through Amazon Web Services (AWS), which provides compute, storage, database, analytics, applications and deployment services that enable virtually various businesses.
Despite currency headwinds that amounted to $1.4 billion, the company still had worldwide unit growth that grew 22% in the second quarter. Plus, AWS revenues increased an astounding 81% to $1.8 billion, which was $400 million more than the analysts’ estimates. Outages from AWS caused major disruptions recently for customers using Amazon services, as well as users of Netflix, entertainment database IMDb and a number of others. Problems related to the outage were quickly resolved.
The Deutsche Bank team expects strong third-quarter results as they see the company hitting on all cylinders. They also expect upward revisions to current estimates, another big catalyst for the stock.
The Deutsche Bank price target for the stock is $665, and the Thomson/First Call consensus target is $647.63. The stock closed Friday at $532.54.
The stock has fought back from a huge drop one month ago and is trending higher. Facebook Inc. (NASDAQ: FB) has Instagram, Premium video and Graph Search capabilities to strengthen the social media giant’s earnings flow. Some analysts feel that the company can drive revenue growth even without a huge increase in advertising placement. It has been reported that Instagram is opening its platform for advertisers, particularly direct response advertisers via new direct response ad units like mobile app install ads. With a talented and experienced sales team, this should only continue to drive revenue higher.
Most Wall Street analysts point to the fact that Facebook remains the top beneficiary of the adoption of mobile Internet trends with total U.S. Internet time spent on Facebook and Messenger. Other metrics continue to explode, and the key is there are no viable challengers anywhere in sight. They cite positive monthly data use, easier growth comparisons and positive data on ad revenue drivers as the top catalysts. The Deutsche Bank team views Facebook’s longer term opportunities as almost unmatched by their mega-cap consumer internet peers.
Facebook also announced earlier this summer a willingness to share ad revenue to acquire premium content, a totally new avenue for the company. They hope to draw content away from Google’s YouTube. Facebook will offer contributors 55% of the revenue from ads that appear alongside videos, the same split as YouTube. The spots will be part of a new feature that suggests clips to Facebook users who are already watching videos. This is yet another step forward for the company as it builds a hedge to the social media train that at some point may hit critical mass.
The Deutsche Bank price target is $110, and the consensus target is $111.60. The shares closed Friday at $92.07.