It has been rough sledding for Internet-related stocks this year, with the Nasdaq CTA Internet Index down 41%.
Bank of America has put together a list of 69 potential catalysts for the sector during the second half of the year and judged which stocks might benefit and which might suffer.
“The Internet group has consumer recession risk … making macro data the top sector catalyst,” BofA analysts wrote in a commentary.
“If bearish sentiment continues to drive stock performance in the second half, we view Alphabet (GOOGL), Facebook [Meta Platforms] (META) and Match (MTCH) as most defensive/recession resistant.”
Further, “while more revenue estimate cuts for advertising stocks are likely in a possible recession scenario, Meta and Alphabet have outsized expense flexibility,” the analysts said.
That’s due to “significant long-term investment spending, healthy margins, significant cash reserves to take advantage of stock dislocations with buybacks, and more potential price-earnings valuation support versus peers.”
Here are some of the catalysts listed by BofA analysts and the companies they see affected.
Travel Catalyst
Catalyst: “Starting June 20, [Booking Holdings’] (BKNG) Priceline offered discount coupons, and thousands of hotels will be on sale for 15% or more. The sale could aid bookings and possibly have small negative impact on take rates.”
Potential beneficiary: Booking Holdings
Potentially at risk: Expedia (EXPE)
Prime Day Catalyst
Catalyst: Amazon’s (AMZN) Prime Day(s), July 12-13. Prime Day could add over $5 billion in sales to the third quarter for the company, BofA said.
Potential beneficiary: Amazon
Potentially at risk: eBay (EBAY) and the retail sector
Expense Catalyst
Catalyst: Expense rationalization commentary on earnings calls. “With soft e-commerce spending, rate hikes and retail inventory build, we expect commentary on earnings calls to reflect slowing investment spending,” the analysts said. That “could offset some revenue pressure,” they said. “Alphabet and Meta have the most investment spending flexibility in the sector, while lower gross-margin companies have the most margin risk.”
Potential beneficiaries: Alphabet, Meta Platforms
Potentially at risk: lower gross-margin companies
Federal Reserve Catalyst
Catalyst: Federal Reserve interest-rate increases. “Higher rates are a potential headwind to the [fintech real estate] sub-sector given lower affordability and buyer demand, and increased holding costs,” the BofA analyst said.
Potential beneficiaries: None
Potentially at risk: Redfin (RDFN), Zillow (Z), Opendoor Technologies (OPEN)
Lord of the Rings Catalyst
Catalyst: The Lord of the Rings: The Rings of Power Premier. “Amazon's Lord of the Rings TV series will launch on Prime Video in September,” the analysts said. “The production reportedly cost nearly $500 million, and the series may be the most expensive TV production in history.”
Potential beneficiary: Amazon
Potentially at risk: Netflix (NFLX)
