Amazon.com Inc (NASDAQ:AMZN), which has seen a strong run-up in the value of its shares after posting stellar quarterly performances, is off the Stifel Select List, replaced by social media giant Facebook Inc. (NASDAQ:FB).
The elevation for Facebook came as the stock drove Wall Street higher Monday on a separate report that it was planning to offer new services.
Facebook gained 3.4% after the Wall Street Journal reported the social media giant had asked large US banks to share detailed financial information about their customers, as part of an effort to offer new services to users.
“We are adding Facebook to the Stifel Select List as one of our top internet investment ideas with a 12-month bull-case potential return of +50%, representing greater than 3:1 risk-to-reward,” wrote Stifel analysts Scott W Devitt, John Egbert, Lamont Williams, DL Thomas and Will Carroll.
“We are replacing Amazon with Facebook on the Stifel Select List given strong YTD Amazon performance, though we remain Buy-rated on Amazon shares,” they added.
Facebook shares and investor expectations were materially reset with a painful second quarter. After missing revenue estimates and bearing the brunt of the fallout from a user-data breach scandal, Facebook provided a bleak outlook for user growth prompting a massive sell-off.
CEO and co-founder Mark Zuckerberg warned during a disastrous conference call that an investment in security would impact profitability. He added that revenue growth would slow year over year in the second half of 2018.
“We, like most, were largely taken by surprise with the timing and magnitude of management's forward outlook (Stories, platform investment levels et al.). Despite a ~6-month rollercoaster ride for Facebook investors, we believe that shares and expectations are appropriately set to allow for longer-term outperformance and view near-term issues as transitory,” wrote the Stifel analysts.
“Facebook still owns the world's most dominant social and messaging services, counts 2.5 billion people as monthly users, and is positioned to drive multiple years of 20%+ revenue growth,” they added.
The analysts said that in a similar way that Google has driven many years of 20%+ annual revenue growth due to core search, YouTube, Google Shopping, and the shift to mobile, “Facebook has its own set of multi-year growth drivers: core Facebook, Instagram, Facebook Watch/Instagram TV, WhatsApp, and Stories (among others).”
“While the comparison is illustrative rather than exact, we like the growth potential,” wrote the analysts.
The analysts said Facebook with over 2.5 billion monthly users across Facebook, Instagram, WhatsApp, and Facebook Messenger would command ad revenue.
“Facebook's advertising platform is on track to generate approximately $54 billion of revenue in 2018, a revenue base which we expect to support a +20% revenue CAGR through 2023,” wrote the analysts.
“We view near-term headwinds as transitory and believe Facebook will emerge a safer and more sustainable platform following heightened investment in the business. We think the transition is appropriately reflected in current growth expectations, with potential for future upside from ramping/future monetization of video, Stories, and WhatsApp,” they added.
Contact Uttara Choudhury at [email protected]