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Goldman Sachs has come out with 10 themes to watch in the internet and interactive entertainment spaces for the year ahead – and unsurprisingly, a number of themes find their strongest exposure in some of the biggest players in the industry, including including Alphabet (GOOG) (GOOGL), Metaplatforms (NASDAQ: META) and Amazon.com (NASDAQ: AMZN).
Eric Sheridan and the team at the firm highlight a few big investor debates first and foremost: what to expect as the “new normal” for post-COVID growth, and to what extent management has held back investment for focus more on real investments. head profits.
“We argue that investors will have to accept lower levels of normalized growth given pandemic-era penetration gains as digitalization has accelerated, but this solid (well above global [gross domestic product] growth) remains in the coming years for many key categories,” the analysts say.
As for earnings, the mid-quarter announcements made by many companies are a “promising first step”, but in a number of cases it is only a matter of unwinding the headcount investments made over the past few years. Last 6 to 18 months rather than incremental changes, they say. All businesses, on the other hand, face the short-term hurdles of low visibility on the stability of interest rates and the stability of final consumer/business demand.
Digging into more specific themes, Goldman Sachs notes that it continues to see “blurred lines” between traditional advertising and e-commerce – including “the rise in the adoption of social commerce (by digital advertising platforms) and retail media networks (through e-commerce and other marketplace platforms).” Best positioned to capitalize are Google (GOOG) (GOOGL), Meta Platforms (META) and Pinterest (PINS), according to the group, while recently Amazon.com (AMZN) rolled out new social commerce through its short video Inspire/ photo stream for product discovery.
Speaking of short video, it’s also a key theme as rivals pivot to rival the rapid success of TikTok (BDNCE). Despite a big increase in time spent, monetization is still in its “early stages”. The most exposed to this theme are Google and Meta, says Goldman.
Google and Meta, along with Pinterest (PINS) and Snap (SNAP), are also key to Goldman’s fifth theme: the rise of the creator economy. Tools, monetization and the role of “influencer” meet “a new dynamic of the industry where the platforms embracing this change save time but increasingly need to share/separate the unit economy from this monetization of the traffic with the content creator”.
Regarding the rise of local e-commerce, analysts note that the COVID-19 era has made activities such as food delivery, ship-from-store, and online purchase/in-store pickup “more normative” consumption behaviors. Corporate investments in the space are likely to take shape around a few key verticals – food delivery, convenience, grocery – which have the potential to expand into broader consumption, and the major players are DoorDash (DASH ), Lyft (LYFT) and Uber (NYSE: UBER) with Amazon.
After a continued post-COVID rebound, online travel is evolving in two main ways, the team notes: taking more of the consumer’s wallet per trip and marketing leverage will likely be the main drivers of increased market share, faster growth and operating margin leverage, with margin volatility is a key industry debate for 2023. Those most exposed to this theme, according to Goldman , are Airbnb (ABNB), Booking Holdings (BKNG), Expedia (EXPE) and Vacasa (VCSA).
The cloud computing conversation is shifting from cost-effectiveness to “a critical part of growth for customers”, analysts say, although in the long run scaling remains an age-old theme – and the key names that exposed there are Google (GOOG ) (GOOGL) and Amazon Web Services (AMZN).
It was hard in the 2022 discussions of internet stocks to stray too far from the concept of “metaverse,” the evolved online space that fuses virtual reality with other technologies for an immersive experience. “In our universe of coverage, we see game companies (Roblox (RBLX), Activision Blizzard (ATVI), Electronic Arts (EA), Take-Two (TTWO), Ubisoft (OTCPK:UBSFY)) and some advertising companies (Meta and Snap) as being at the forefront of this theme, both from a consumer and investment perspective.”
A final theme for the space concerns the rise of governmental and regulatory attention to the business practices of large-scale players, including Amazon, Google, Meta, DoorDash, Lyft and Uber.
“We see three potential dynamics,” Goldman analysts say. “(1) the “big noise” if investigations, fines and new rules proliferate; (2) increased costs to comply with a range of global initiatives (particularly in the area of data collection and consumer privacy); and (3) headwinds to any market consolidation or strategic mergers and acquisitions by large players (causing the industry to rely on in-house product R&D). »
In summary, analysts see the most compelling risk/reward ratio of the bunch settling on certain large-cap names that have similar narratives: “well-established and tailored end-market positioning, ability to manage improved margin trajectory in 2023 and beyond (regardless of the macro backdrop at 1H 2023), & a “wall of worry” that has grown over the past six months”: Uber (UBER), Amazon.com (AMZN ) and Meta Platforms (META).
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