Cantor Fitzgerald analysts Youssef Squali, Naved Khan and Kip Paulson rate Facebook Inc (NASDAQ:FB) as a buy as they provide an outlook of the improving economic conditions in the U.S. Below is their recent report on Facebook Inc (NASDAQ:FB):
Facebook and Google to benefit from growth areas
While valuation for the group is at a five-year high, improving economic conditions in the US, stabilization in Europe, potential for increased M&A activity in 2014 and a fear of missing the next leg in this bull market are likely to keep investors engaged, at least through year end. Analysts maintain a positive bias longer-term, and highlight Google Inc (NASDAQ:GOOG) and Facebook Inc (NASDAQ:FB) as large beneficiaries of some of the most exciting growth areas in the Internet today. Analysts view eBay Inc (NASDAQ:EBAY) as the “value” buy.
The Cantor Internet Index (CII) slightly outperformed the broader market for the week. The CII increased 1.9% between Dec. 12-18 vs. the S&P 500 (INDEXSP:.INX)’s increase of 1.6%. YTD, however, the CII is still up a sizeable 48.9% vs. S&P 500’s +27.0% (see pg. 6-7 for details).
Amazon maintains sales momentum
Amazon.com, Inc. (NASDAQ:AMZN) maintaining post Thanksgiving sales momentum, eBay Inc (NASDAQ:EBAY) up nicely. Third party (3P) same store sales (SSS) for Amazon were up 39% Y/Y for Thanksgiving day (Nov. 28) through Dec 13 vs. the corresponding holiday period last year, according to Channel Advisor (CA), pointing to solid sales momentum for Amazon during the peak holiday season so far. SSS for eBay were up a respectable 20.9% for Nov. 28-Dec 13, according to CA. Analysts note that this is a pick-up over the 12.9%/10.9% reported for Oct./Nov. and is generally in-line with management’s commentary of seeing incremental improvement in business when we hosted an investor meeting with the company last month (see our Nov. 15 note for details).
ChannelAdvisor’s online sales rise
The latest snapshot shows that in the first seven weeks of the Holiday season (through 12/15), online sales were up 10.1% for ChannelAdvisor Corp (NYSE:ECOM), reflecting a pick-up in consumer shopping activity post Thanksgiving, according to data from comScore. Analysts note that online sales in November rose only 5.4% Y/Y, largely reflecting the impact of late Thanksgiving day this year. With two more weeks to go into year-end, they continue to expect online sales for 4Q to be up 12-13% Y/Y.
Cantor’s checks show robust growth in paid-clicks for Expedia.com and Hotels.com in October and November, which firm view positively for Expedia Inc (NASDAQ:EXPE)’s 4Q results. They also expect the company to further improve its performance on TripAdvisor, which should further aid 4Q results.
Facebook Inc (NASDAQ:FB) is offering 70M shares, consisting of 27.005M primary and 42.995M shares from existing stockholders, including 41.350M shares from CEO Zuckerberg, according to an S-3 filing. Mr. Zuckerberg will hold 217 A Shares and 444,251,850 B Shares post offering, resulting in 62.8% voting control, down slightly from 65.7% previously. Analysts believe Facebook is appropriately taking advantage of selling shares into strength from Facebook’s inclusion in the S&P500, and excitement around the launch of auto-start ad videos. They estimate the dilution from this offering to be minimal and its timing as boding well for 4Q results.
Valuation
Cantor’s CII is trading at ~13.9x EV/NTM EBITDA (as of 12/18/13), at the very high-end of its five-year rolling average range of roughly 5.5-13.9x. That said, valuation is still well below the levels seen back in 2006-07 when a flurry of M&A activity helped drive valuations higher.
