Facebook Inc (NASDAQ:FB) and Netflix, Inc. (NASDAQ:NFLX) both lost significant value in the Internet selloff over the last month or so, and analysts see buying opportunities here. The JPMorgan team sees strong growth in both companies’ futures and note that while neither’s fundamentals have changed much recently, their share prices have plummeted.
Still early for Facebook
In a report dated April 9, 2014, analysts Doug Anmuth, Kaizad Gotla and Diana Kluger note that shares of Facebook Inc (NASDAQ:FB) have declined 19% since hitting their high on March 10. However, they’re still up by about 6% so far year to date. They believe it’s still early in the social network’s monetization process and that demand from advertisers continued to build through the first quarter.
They note that data from comScore suggests that engagement on Facebook Inc (NASDAQ:FB) remained strong as well. The social network had about 18% share of overall Internet time in February. Excluding Instagram and WhatsApp, the company’s mobile share rose to 22% in February from 21% in January. They think advertiser demand and ad quality will keep driving relevancy for ads and, as a result, click-through rates as well. They also see potential upside from advertising on Instagram, which recently passed 200 million monthly active users. In addition, they think auto-play video ads could help Facebook surpass estimates.
The JPMorgan team believes the bear case for Facebook Inc (NASDAQ:FB) is focused on difficult comparisons for the second half of this year because the social network did so well last year. Other possibly problems include concerns about slower ad revenue growth and share dilution because of the Oculus and WhatsApp acquisitions. However, they believe it’s just too early to say that Facebook can’t keep posting strong growth rates. They name higher demand, better pricing, engagement and better returns on investment for advertisers as being the likely upside drivers.
Netflix in a disrupting process
Shares of Netflix, Inc. (NASDAQ:NFLX) have declined 23% since their recent high on March 4 and are down 5% so far this year to date. The JPMorgan team still thinks the company is in the process of “significantly disrupting linear TV.” They see continued strong growth ahead, both in the U.S. and internationally. They think the company will keep improving the quality of its services and ultimately begin offering tiered plans at different price points.
They believe the second season of House of Cards increased subscriber net adds for the company’s first quarter, as well as other content. In addition, they expect continued subscriber momentum for the rest of the year because of Netflix, Inc. (NASDAQ:NFLX)’s original content.
They say the biggest concerns they hear about Netflix, Inc. (NASDAQ:NFLX) right now is the company’s leverage compared to MSOs and telcos, as well as increased competition. However, they don’t see things as changing much with the deal Netflix made with Comcast Corporation (NASDAQ:CMCSA). Also they believe Netflix’s original content is better than that of Hulu and Amazon.com, Inc. (NASDAQ:AMZN).
