Internet stocks can often trade based on storylines, and analysts at Bernstein say many of the emerging narratives for 2024 look positive for Meta and Amazon stock.
In a Wednesday client note, Bernstein analysts maintained an overweight, or positive, rating for Amazon and Meta, as well as for Uber and DoorDash. The other 10 internet stocks covered by the bank were all held at prior neutral, market-perform ratings. Those include Google parent company Alphabet.
After the rally late in 2023, many internet stocks are entering 2024 trading at higher multiples, the client note said.
"The fundamentals now have to live up to the stock moves, and not much has changed on this front yet," Bernstein analysts led by Mark Shmulik wrote. "This keeps us selective."
Here are some of the other narratives the Bernstein analysts are watching:
Temu, Shein Continue Ascent
U.S. e-commerce last year was "defined by the unprecedented rise" of Temu, Shmulik wrote. Temu is the discount shopping app launched late in 2022 by Chinese tech giant PDD Holdings. Privately held Shein and TikTok's shop are also growing rapidly while selling goods from Chinese manufacturers to U.S. customers.
This year, the debate about Temu and Shein has shifted. The question is no longer if the platforms are here to stay. Instead, the question is, "How much share can these entrants capture? And from whom?" as Shmulik wrote.
That is likely good news for Meta, which has benefited from lavish ad spending by Temu and Shein. Google, Pinterest and Snap also stand to gain, according to Bernstein.
Etsyand eBay are most directly challenged by Shein and Temu, in Schmulik's view. Meanwhile, Amazon has better defenses through its selection and fulfillment capabilities. But the company is also making adjustments, as Bernstein's report noted. The tech giant recently reduced the fees it charges for clothing sellers to list products.
Amazon Stock: A Return To Normal
Further, 2024 represents another year out from the boom-bust cycle for e-commerce and social media stocks created by the pandemic.
"We are now getting far away enough from the pandemic where investors can start to re-assess 'normal' growth rates against more 'normal' comps again," Shmulik wrote. "If 2023 was about revenue bottoming out, then 2024 should be about returning to more robust levels of growth."
With that in mind, the Bernstein analysts like Amazon, Uber and DoorDash for their potential to generate free cash flow. Meanwhile, Meta has also shown "a remarkable ability to execute," and has new addressable markets in its Reels short-video product and so-called click-to-message chat advertising, the note said.
Building On The AI Narrative
There's also a question of the next "topical theme" that will drive debate among internet stock investors, Bernstein's report noted. Last year was dominated by generative artificial intelligence, of course. It's certainly possible that continues for another year.
"We are still wrapped up in the Gen AI hype-cycle and investors are now looking for incremental use cases and revenue streams to spawn from recent advancements," Shmulik wrote
Based on 12-month target price, the analysts are most bullish on Amazon stock. Bernstein set a target of 175 for AMZN, indicating 17% upside from Amazon's closing price of 149.93 on Tuesday.
On the stock market today, Amazon stock is trading down by a fraction at 149.59 in recent action. Meta stock, meanwhile, is down 0.5% at 344.40.
