This year large cap internet stocks have been the place to be, especially four names in particular: Facebook, Amazon, Netflix and Google, or “FANG,” as Barclays analyst Paul Vogel refers to the quartet. So will this trend continue into next year? The Barclays team thinks so, at least for Google Inc (NASDAQ:GOOG), Amazon.com, Inc. (NASDAQ:AMZN) and Facebook Inc (NASDAQ:FB), although they note that they missed Netflix, Inc. (NASDAQ:NFLX)’s move and remain “on the sidelines” on it for right now.
Amazon, Facebook, Google riding high on fundamentals
Vogel and team note in their Dec. 1 report that while sometimes market dynamics drive the performance of some stocks, this time around, “real and significant improvements in fundamentals” have been the drivers of Amazon, Facebook and Google.
They said all three companies have surprised on the top line and demonstrated accelerations in revenue growth in almost all their reported quarters so far this year. Further, they said revenue upside was paired with either improving (in Amazon’s and Google’s cases) or better-than-expected margins (in Facebook’s case).
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The Barclays team added that the only exception to the trend is Netflix, as outperformance in subscriber expectations has driven the performance of its stock while the financials have been about as expected to “modestly disappointing,” they believe.
Will investors keep sinking their teeth into FANG?
Vogel that Facebook, Amazon, Netflix and Google ae all widely owned as most of Wall Street remains bullish and expectations continue floating higher. However, they think Facebook’s, Amazon’s and Google’s fundamentals will remain strong next year and see possible upside for several of them compared to consensus estimates. They don’t think the valuation of any of these three companies is stretched. The analyst added that the third quarter results of all three companies reinforced their views, so they didn’t make many changes to their models.
Looking out across the large cap internet universe, they add that the thesis which triggered their “controversial upgrade” of LinkedIn played out earlier than expected and that Expedia’s “roll up story” continues. They also remain cautious on Twitter, Yahoo and Priceline following all three companies’ weak third quarter results.
Here’s a look at the recent performance of some of the big large cap internet stocks we follow:
And here’s how the fundamentals of the biggies have played out versus their stock prices:
Facebook downgraded by CrispIdea
Interestingly, while most firms are bullish on Facebook, CrispIdea (a lesser-known firm) downgraded the social network to Hold, citing the expectation that its growth will slow down. The firm also thinks Facebook’s premium will fall as its growth “normalizes,” with the PE multiple expected to fall to 35 times (from the current 105) and the PS multiple expected to decline to 8.5 times (from 16).