Nomura Instinet starts Facebook at Buy, Twitter at Reduce, Netflix at Neutral

U.S. two-dollar billsPhoto by Leslie Shaffer

Nomura Instinet started coverage on the U.S. internet sector, saying it’s positive despite slowing user growth and rating Google-parent Alphabet and Facebook at Buy, Twitter at Reduce, and Netflix and Snap at Neutral.

“We are positive on the digital media and advertising group as a whole and believe there is still a considerable amount of revenue growth to be generated, as digital advertising remains a significantly under-monetized medium,” it said in a note dated Tuesday.

It tipped the growth to be led primarily by digital video and social as TV budgets are transitioning to digital, it said.

“As a result of slowing user growth and already high internet penetration, the growth will likely be led by pricing, rather than volume, and the consistent shift away from offline to online media,” Nomura Instinet said.

It forecast a 15 percent five-year compound annual growth rate (CAGR) through 2020 for the global digital advertising market, adding it expected digital ads to head toward half of all advertising spending by 2020.

Digital advertising growth was expected to mainly come from mobile, Nomura Instinet said, forecasting a 2015-30 CAGR of 30 percent, to offset the continued single-digit declines in desktop advertising.

When it comes to expected regulation on the sector, the note said it was expected to “embolden the incumbents and increase their market share at the expense of smaller tech firms.” It said Facebook and Google were likely in the best position to handle the increased costs and to benefit from the barriers to entry.


It started Google and YouTube parent Alphabet at Buy with a US$1,400 target.

“We believe that Alphabet’s share of online search and video advertising and the reach of its brand and platform provide a moat that distances the company from its competitors,” it said.


It started Facebook at Buy with US$228 target price.

Despite recent negative headlines, “we think advertisers are likely to continue spending on Facebook’s properties, and we consider WhatsApp to be the largest source of upside to our estimates,” the note said.


It started Twitter at Reduce with a US$31 target price.

“We view Twitter as a stable and extremely valuable platform with long-term strategic value. However, we see some downside risk to consensus estimates for 2019, particularly to the first-half tmonetization levels,” it said.


It started Netflix at Neutral with a US$370 target price.

“Netflix’s expansion has been an undeniable success story, and we think that significant opportunity remains for both subscriber growth and ARPU increases,” it said. ARPU stands for average revenue per user.

“However, the company faces intense competition, a maturing U.S. market, and the potential for a longer-than-expected international ramp. As such, the stock’s near all-time high valuation leaves us cautious in the near term,” the note said.


It started Snap at Neutral with a US$13 target price.

“From a sentiment and stock performance perspective, we would like to think the majority of the worst is behind Snap, but recent volatility in user trends and monetization, paired with some fairly consistent management turnover, leaves us on the sidelines, awaiting platform stabilization,” the note said.


It started Spotify Technologies at Buy with a US$210 target price.

“We believe that Spotify is the best-positioned independent music streaming provider globally and that it stands to benefit from continued industry growth,” the note said.

The Trade Desk

It started The Trade Desk at Neutral with a US$87 target price.

“We believe The Trade Desk is one of the best-positioned third-party ad tech names, and we view the company as having the best opportunity for being the only survivor among independent ad buying platforms,” the note said. But it added, “we believe current valuations incorporate these share gains appropriately.”


It started Criteo at Neutral with a US$34 target price.

It noted that Criteo had a rough end to 2017, as Apple’s Safari limited the ability to track users across sites with cookies and with the then-upcoming introduction of GDPR (General Data Protection Regulation).

“In our view, the GDPR overhang is likely overdone and we expect the worst of the Apple Safari issues to be in the rearview mirror, but we wonder how much upside we can expect with the company already able to observe roughly two-thirds of all non-Amazon and Chinese eCommerce transactions, which we estimate equates to $1 trillion,” it said.

Pandora Media

It started Pandora Media at Neutral with a US$8 target price.

“We believe the company missed a significant opportunity to capture the domestic streaming market with a later-than-expected Premium launch that missed the Holiday window and during a time of unprecedented streaming industry growth. As a result, Pandora appears not to be a part of the current streaming option conversation,” the note said. “We fear that brand loyalties have been built with competing platforms, particularly with the younger demographic.”