By Senad Karaahmetovic
Jefferies analysts have a neutral stance on the Internet sector for 2023 as they believe analysts will be forced to further cut revenue estimates. On the other hand, the downside is limited as valuation multiples have already fallen significantly. About 70% of the analysts' FY23 revenue estimates are below consensus, hence they expect other sell-side analysts to cut numbers, reflecting a weakening macro environment.
"We believe the reset in revenue estimates will drive an underperformance in Internet stocks in 1H23 with outperformance expected in 2H23," the analysts wrote in a client note.
They also highlighted the top three Internet stocks to own in 2023: Meta Platforms (NASDAQ:META), Etsy (NASDAQ:ETSY), and Integral Ad Science (NASDAQ:IAS). The analysts also flagged three key reasons why investors should be positive on Meta stock this year.
1) At 16x FY23 EPS, META is among the cheapest names in our coverage,
2) The analysts see revenue upside coming from fast-growing IG Reels ($3B rev. run-rate) and Click-to-Messenger + Click-to-WhatsApp ads (combined $10.5B rev. run-rate), and
3) The recent focus on expense discipline will likely provide further EPS protection with a reduced FY23 expense guide another positive catalyst.
"We believe the ongoing privacy headwinds, competition from TikTok, and a deteriorating macro environment are likely well understood at current levels," they added.
Elsewhere, the analysts also urged investors to own mega-cap names, like Alphabet (NASDAQ:GOOGL) and Amazon (NASDAQ:AMZN), in addition to Meta Platforms, given "their sizable balance sheets should allow them to withstand a prolonged deteriorating macro, while core businesses should remain resilient and lead in recovery."
Last week, Mizuho analysts also included Meta as one of their top Internet stocks in 2023.