By Senad Karaahmetovic
Morgan Stanley analyst Brian Nowak has taken a more cautious view on the internet sector amid the rising macro and micro uncertainty.
Nowak’s bearish pivot comes after the MS US Economics team lowered their outlook for GDP and PCE growth in 2H22 and 2023. Moreover, the analyst also takes note of Snap’s guide down.
All taken into account, Nowak cut 2022-2023 online ad and e-commerce macro models by 1-4%.
“Given the rising uncertainty we elect to take a more pragmatic approach with our online ad and e-commerce estimates. We now model ~13%/16% Y/Y online ad growth and ~8%/10% Y/Y e-commerce growth in ‘22/’23,” Nowak told clients in a note.
Revised estimates also lead to lower price targets on Amazon (NASDAQ:AMZN), Alphabet (NASDAQ:GOOGL), Facebook (NASDAQ:FB), Snap (NYSE:SNAP), and Pinterest (NYSE:PINS).
However, the analyst expects internet investors to focus on blue-chip names “like these first if/when inflation fears subside and the consumer (hopefully) holds on better than feared.” Along these lines, Nowak reiterated his bullish stance on AMZN, FB, and GOOGL.
“For perspective, we see FB/AMZN/GOOGL currently trading at ~7X/12X/10X our '23 EBITDA...which are ~45%/~40%/~20% discounts to longterm NTM average multiples,” he added.
On SNAP, the analyst noted that the new price target of $24.00 implies a roughly 70% upside from current levels, although the company is likely to require “multiple quarters of consistent execution and messaging to regain investors’ trust,” hence the Neutral rating.