Looking forward to 2024, JPMorgan believes the macro backdrop for the internet space remains challenging and identifies six top picks in the space. Namely, JPMorgan highlights Amazon (AMZN), Uber (UBER), Alphabet (GOOGL), Match Group (MTCH), Vizio (VZIO) and EverQuote (EVER). Alongside the shuffle of its top picks list, the firm is increasing Alphabet and Uber’s price targets, but is not making any recommendations changes.
TOP THEMES IN 2024: JPMorgan believes the macro backdrop for the internet space remains challenging with recession risk still looming. It sees a 60% recession probability by the first half of 2025, although soft-landing probability has moved higher to 40%. The firm also notes that while internet valuations are off the lows, they are not near peaks even with the recent moves higher. The internet names that screen most favorably across growth and valuation are Amazon, Alphabet, Meta Platforms (META), Booking Holdings (BKNG), Eventbrite (EB), Bumble (BMBL) and Vizio.
The firm has identified several internet themes that should be in focus next year. First, JPMorgan sees a more stable and normalized growth in 2024. The firm also sees margin gains being more mixed after cost reduction efforts in 2023, while public cloud should shift from optimizations to re-acceleration. GenAI will be in its year 2, which should come with high expectations but still much to prove, JPMorgan says. Regarding online ads, the firm believes the focus will be on product, ad tech, and company-specific drivers. Meanwhile, e-commerce share gains should continue, with focus on logistics and grocery. The firm sees a more balanced growth for streaming media, video shifting to ads, rides/food resilience and strong growth continuing with better profits, and online travel returning to normalized growth. JPMorgan expects regulatory focus to be around mega caps and antitrust.
2024 BEST IDEAS: JPMorgan’s best internet ideas for 2024 are Amazon, Uber, Alphabet, Match Group, Vizio and EverQuote. The firm says that Amazon is the most diversified mega-cap across revenues/profit and has numerous large growth opportunities. Further, it notes that AWS re-acceleration in 2024 is supported by secular growth, new workloads, easing comps, and GenAI. Additionally, JPMorgan believes strong execution and disciplined investments will drive OI margin expansion and significant free cash flow generation.
The firm also sees Uber outperforming next year, citing new initiatives that are driving faster growth, Uber One adoption, and strong execution on profitability. It also highlights the stock’s higher quality ownership post S&P inclusion and says that $5.3B in 2024 free cash flow should open door for capital returns. Alphabet, on the other hand, should outperform given its improving ad growth, year two of re-engineering cost base, and as Gemini tightens GenAI gap, the firm says. JPMorgan also cites weaker sentiment and the fact that it is less owned than other mega-caps, with undemanding valuation, for its choice.
Also expected to shine in 2024 is Match Group, with the firm citing Tinder payers returning to growth, buyback support and undemanding valuation. Further, it believes App store relief is not priced into shares, but EU Digital Markets Act could be a positive catalyst in 2024. JPMorgan expects Vizio to also outperform next year, given its reasonable price for connected TV play and OS licensing opportunity, and as TV prices stabilize. Lastly, the firm sees EverQuote well positioned to benefit from the auto carrier recovery, with revenue accelerating through 2024.
TARGET RAISES: JPMorgan raised its price targets for Alphabet and Uber to $160 and $76, from $150 and $62, respectively. The firm kept Overweight ratings on both names.
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