Morgan Stanley Research Analyst Scott Devitt and his team, published a report titled “Internet; 2012 Outlook: Worlds Collide” on December 14, 2011. The report isn’t publicly available but we will summarize main points of the report. Morgan Stanley (MS) views the internet industry as “attractive”. We discuss Morgan Stanley’s recommendations in a series of articles and this is the last of the three (see part I, part II).
Priceline.com (PCLN) has been given an Overweight rating by Morgan Stanley with a price target of $650. Although investors have recently refrained from investing in stocks with high European exposure, MS analysts still believes that Booking.com will outperform its peers in 2012 as it will increase its market share from 8% to 17%. The company is also well-positioned to capitalize on last minute bookings through mobile devices, which are expected to grow at a much faster rate than traditional online bookings. On the social front, Priceline does use Facebook and its apps for sales and distribution efforts. However, Expedia (EXPE) is far more aggressive in social media marketing compared to Booking.com or Priceline.com. Stephen Mandel’s Lone Pine Capital had nearly $300 million invested in Priceline at the end of September.
Shutterfly (SFLY) has been given an Overweight rating by Morgan Stanley with a price target of $40. Shutterfly is expected to do well in 2012 due to the transition from offline to online printed media. Shutterfly has outpaced its direct competition as far as simple functions such as photo upload, storage and content creation is concerned. Shutterfly also has a mobile app that connects a consumer’s phone to Shutterfly’s servers. However, the company needs to do more to leverage the mobile segment and generate meaningful revenues from it. On the social front, Shutterfly allows users to share their photos with family and friends and it has an API that allows users to bring photos to Facebook and other social websites.
Vistaprint (VPRT) has been given an Equal-weight rating by Morgan Stanley, with a fair value of $40. Scott Davitt and his team believe that the company creates value for its customers through its batch manufacturing process, which allows the company to take advantage of economies of scale by bundling multiple smaller orders into a larger one. Vistaprint may benefit from creating a mobile app and can develop products that can help small businesses in developing custom applications. Jim Simons’ Renaissance Technologies had $26 million invested in Vistaprint at the end of September.
WebMD Health (WBMD) has been given an Equal-weight rating by Morgan Stanley with a fair value of $31. Analyst expects the company to benefit from the organic shift in offline-to-online pharmaceutical advertising. The company’s consumer websites have experienced sequential growth of approximately 25% in page views, over several quarters. However, the company now expects a slow-down in ad revenue growth. On the mobile front, the company maintains consumer- and physician-focused mobile apps with around 7.5MM and 1.6MM downloads to date, respectively. Management has also recently announced plans to launch new mobile services which should contribute to the top-line starting from 2012.
Yahoo (YHOO) has been given an Equal-weight rating by Morgan Stanley with a Price target of $16. Yahoo is the fourth largest web property worldwide and the second largest traditional web portal. Despite having only 25% of its users from U.S., the company generates 70% of its revenues from a U.S. customer base. Despite having a favorable penetration in the market, company’s display revenue growth has underperformed the market. MS analysts anticipate that Yahoo may be losing its share to Google (GOOG), Facebook, and other social networks. Dan Loeb’s Third Point initiated an activist stake in Yahoo during the third quarter.
Disclosure: I am long MS.