Goldman Sachs analysts Heath Terry, Maria Seredina, and Mrinal Pareek published a report on December 14th. Goldman Sachs (GS) is bullish on the internet sector as they believe it will continue to benefit from increased penetration both in the U.S. as well as the international markets. With the introduction of faster broadband services, this sector is likely to see a continued increase in growth and consumer base. This will drive growth in internet related industries. The increasing use of mobile and smart phone devices is also proving to be a positive catalyst for the growth of the internet sector. Goldman’s analysts think that online advertising will reach $31 billion by the end of this year and this figure is likely to rise.
Here are the highlights of the companies in the e-Commerce sector mentioned by Goldman Sachs in their aforementioned article:
eBay (EBAY) is a well-known company known for running an online auction website. eBay is listed on the Goldman Sachs’ conviction list as the company with the most potential and has been given a buy rating. Goldman says that over the last 4 years, eBay has continuously improved its technological infrastructure, adding to its search and categorization features. Also, eBay’s use of PayPal as an online payment service is likely to benefit the company in the long term as the market for mobile and online payments continue to increase. With the holidays just around the corner, sales expectations are likely to rise. Currently, eBay’s stock is trading at $30.21 and is expected to reach a target price of $40 by the end of next year. Market capitalization stands at $40.85 billion and earnings per share of $1.47 are expected (Goldman estimates) by the end of 2011. eBay has a net margin of 27.3% and Goldman thinks its EV/EBITDA of 7.7x, which is lower than the sector’s 9.2x, is expected to increase to 10x by 2013.
Ancestry.com (ACOM) is an online family history resource with a subscription based index and database that varies between $13-30, depending on the level of content and the length of the subscription. Goldman Sachs has given the company a buy rating. With an increase in its subscribers, Ancestry sees high incremental margins due to its fixed-cost nature. Goldman argues that an NBC-based program using their database, Ancestry will see an increment in subscriptions around the summer and holiday seasons. The company saw an increase of 290k subscribers in 2011 and Goldman Sachs expects the same number for next year. With a simplification of its user interface, expansion of content, and integration with online social networks, Ancestry could see an increase in its 1.7 million subscribers. Currently, the company’s stock is trading at $22.73 and is expected by Goldman to go north of $33 by the end of 2012. Its market capitalization stands at $1.14 billion and earnings per share of $0.4 are expected by the end of next year. Ancestry has a net margin of 14.9% and its EV/EBITDA of 4.8x is expected to rise to 7x by 2013.
Groupon (GRPN) is a local e-commerce marketplace which is responsible for connecting merchants and consumers. An advantage of using the service is the discount on purchases of goods and services. Groupon has been given a buy-rating by Goldman Sachs. Goldman says that an estimated $500 billion will be invested by Groupon in the global advertising market, with an expansion of $10 trillion in all addressable markets. The company has approximately 145 million subscribers which represents 45% of the traffic to the top 15 deal sites in the U.S. Its stock is currently trading at $22.27 and is expected to increase to $29, by the end of 2012. The company has a market capitalization of $14.76 billion and its current EV/EBITDA of 16.2x is higher than the internet average of 9.2x.
Netflix (NFLX) is an internet subscription service which allows its users to stream movies and television shows. It has been given a neutral-rating by Goldman Sachs because of uncertainties in expansion and rising content costs. Overall, Goldman thinks that the company is expected to recover once these issues are resolved. Recently, Netflix has expanded to Canada, Latin America, and Europe but Goldman thinks that it is likely that this will result in earnings below the consensus street forecasts due to the dislocation created by missteps in the U.S. Goldman Sachs believes that the number of subscribers are likely to increase as a result of its growth but substantial risks are present. Currently, the stock is trading at $68.08 and is expected to rise to $82 by the end of 2012. The company has market capitalization of $4.13 billion and earnings per share of $4.40. A net profit margin of 7.6% was observed in the third quarter of this year. Goldman Sachs says that an EV/EBITDA of 9.1x, which is lower than the industry average of 9.2x, is expected to rise to 10x.
OpenTable (OPEN) helps people book online reservations at restaurants. It has been given a neutral rating by Goldman Sachs. Revenues for the company are generated from monthly subscriptions, booking fees, and system installations in restaurants. Currently, OpenTable is affiliated with over 24,000 restaurants. The company receives over 100% profits and 85% of its revenues come from the North American market. It is looking to expand its operations in the international market and Goldman Sachs opines that mobile phones will help it achieve greater market penetration. Currently, its stock is trading at $40.21 and is expected to reach $44 by the end of 2012. The company has a net margin of 13.7% and market capitalization of $0.89 billion. It’s EV/EBITDA of 11x is greater than the sector average of 9.2x and it has a high P/E ratio of 50.33x.
Shutterfly (SFLY) provides users with tools for online photo procession, products, and gifts. It has been given a neutral rating by Goldman Sachs. The company recently acquired Tiny Prints and their total unique users amount to 50.4 million people. With the growth in digital technology, Shutterfly is benefitting from the increase in the number of photographs taken, which are then stored online. Goldman Sachs expects that the majority of the revenue will come for offline sources for the next 2-3 years. Shutterfly’s stock is currently trading at $23.38 and is expected to increase to $29 by the end of next year. Market capitalization for the company stands at $0.98 billion and has a debt/total capital value of 2.5%. EV/EBITDA of 6.1x is lower than the sector average of 9.2x.
In the e-commerce business Goldman Sachs has mentioned AMZN and here is a brief analysis for the stock.
Amazon.com (Ticker: AMZN) is an online retailer that deals with consumers, sellers, and enterprises. The company operates in two market segments; namely North America and International. Currently, its stock is trading at $181.93 per share. Over the last 52-week period, its shares have traded between the $160.59 and $246.71 range. Amazon has a market capitalization of $82.7 billion and its P/E ratio is 95.82x. Its net profit margin for September 2011 was 0.58%.