Here's why Amazon is Citi's top internet stock idea
By Emily Bary
Despite 'multiple challenges' in the internet sector, Citi analysts say Amazon, Meta, DoorDash and Wayfair are among compelling names
The internet sector faces "multiple challenges," but that's not to say there isn't "ample opportunity" in this part of the market.
Citi Research analysts see "long-term secular advantages and tailwinds" in numerous parts of the internet subsector, including e-commerce, they wrote in a note to clients late Monday.
"There remains pressure on consumer goods spending, but e-commerce is still taking share of that spend and building on pandemic-era gains," they wrote. "As we explore, e-commerce has held onto the majority of the share gains it captured during the pandemic and, after some stabilization, seems to be more regularly capturing share again back to its initial pre-pandemic trend line."
The team is especially upbeat about Amazon.com Inc. (AMZN), dubbed Citi's top pick in the internet landscape more generally.
"We recognize the demand challenges facing Amazon's retail business given macro, slowing AWS growth, and lower operating income," the analysts wrote, referring to the company's AWS cloud-computing business. "But we also believe Amazon can gain wallet share during these uncertain times and that adoption of AWS can accelerate through improved operating efficiencies, and hiring freezes can deliver improving operating income."
Other potential winners, in their view, include Meta Platforms Inc. (META), DoorDash Inc. (DASH), Wayfair Inc. (W), Criteo SA (CRTO), Trade Desk Inc. (TTD), and Wix.com Ltd. (WIX)
Meta has been a controversial name this year amid pressure from TikTok, Apple Inc.'s (AAPL) privacy-related changes around the Identifier for Advertisers (IDFA), and a tougher ad market. But the Citi analysts saw Meta "delivering greater meaningful social interaction...across its user base, making it more relevant."
The company's "advertising platform is rebuilt for a post-IDFA environment and demand for newer ad products like Reels, Click-To-Message, and Advantage+ attract incremental advertising dollars," they added.
DoorDash also invited debate given that an economic pullback could impact spending on food delivery, but the analysts at Citi said that the platform is "a weekly habit for many and that the service has multiple vectors of growth around vertical expansion, advertising, and international."
Wayfair has been hurt by a recent spending shift away from home goods, though the Citi analysts saw opportunity as Wayfair "has taken the critical first steps to improve the key drivers of profitability after announcing a $500 million cost-reduction plan and suggesting there is hundreds of millions of dollars more to come."
Advertising-technology company Criteo is making "a positive strategic shift" with its move away from the "secularly declining retargeting business," they wrote, while there is also "significant upside ahead" for fellow ad-tech company Trade Desk given its "leadership position within CTV," or connected television.
Then there's Wix, which brings a strong position in helping people and businesses build an online presence. The company has its hands in payments, commerce, and partnerships, the analysts noted: "Underlying these metrics is a continuous focus on product that we believe can fuel growth along with a $150 million cost-reduction plan."
(END) Dow Jones Newswires
December 13, 2022 07:36 ET (12:36 GMT)
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