J.P. Morgan (NYSE:JPM) published a report entitled "Internet" on January 13, 2012. The report isn't publicly available, but we will summarize its main points. In the report, Doug Anmuth, Kaizad Gotla, Shelby Taffer, and Bo Nam indicated a positive view on the Internet sector. The analysts are of the opinion that the "internet economy will be driven by strong secular growth, increased online accessibility via mobile devices and tablets, and emerging online trends". J.P. Morgan has identified several key internet industry themes, such as an increase in platform wars, the convergence of online and offline shopping, and a growth in display advertising. Here are J.P. Morgan's top internet stocks:
Google (NASDAQ:GOOG) maintains an index of websites and other online content for users, advertisers, and Google network members, as well as other content providers. J.P. Morgan has given the company an Overweight rating. Google's investments in core search and newer initiatives are expected to pay off, according to J.P. Morgan. The company's new management seems to be focusing on product innovation along with improvements in speed within the company.
In a bullish case, J.P. Morgan is of the opinion that Google may achieve a compounded annual growth rate of 25% in its net revenues, and 21% in its earnings per share between 2010 and 2013. Shares of Google are currently trading around $627 per share and are expected to go north of $730 per share by the end of 2012. Stephen Mandel's Lone Pine Capital had nearly $500 million in Google at the end of September.
Amazon (NASDAQ:AMZN) operates as an online retailer on a global scale. It has been given an Overweight rating by J.P. Morgan due to its investments that are expected to build shares and drive top line growth. J.P. Morgan expects the company's short term profits to be affected by these investments. Amazon's strategy of adding extra features to Prime and bundling it with the Kindle Fire are expected to pay off.
The company's Web Service offering is leading the utility cloud computing segment, and J.P. Morgan expects a margin expansion in a bullish scenario. Shares of Amazon are currently trading around $180 per share and are expected to go north of $235 by the end of 2012. Ken Fisher's Fisher Asset Management had more than $500 million invested in AMZN at the end of the third quarter.
Priceline (NASDAQ:PCLN) operates as an online travel company. It has been given an Overweight rating by J.P. Morgan due to its position in the online travel space. J.P. Morgan expects Priceline to increase its market share both in the U.S. and abroad. Priceline is also expected to continue increasing its margin with its shift towards international and a better leverage in the emerging markets. Shares of the company are currently trading at $492.50, and are expected to reach a price target of $672, indicating a potential upside of 36%. Jim Simons' Renaissance Technologies had more than $200 million in PCLN at the end of September.
LinkedIn (NYSE:LNKD) is an online professional network that allows its members to create, manage, and share their professional identity. It has been given an Overweight rating by J.P. Morgan due to the company's increased penetration in the corporate sector. Also, LinkedIn has a rapidly increasing member engagement, which is expected to show strong results in the coming years. Its shares are currently trading at $70 per share, and are expected to reach a price target of $84 by the end of 2012.
Pandora (NYSE:P) operates as an internet radio company in the U.S. It has been given an Overweight rating by J.P. Morgan, as they believe that Pandora is likely to take share of the U.S. online display, mobile, and radio ad markets. This will represent an opportunity of approximately $37 billion by 2014. J.P. Morgan expects Pandora to continue to increase its market share and improve its ability to monetize mobile hours. Also, as listener hours moderate, Pandora's margin is expected to improve. Shares of the company are currently trading at $12 per share, and are expected to reach a price target of $22, indicating a potential upside of 83%.
HomeAway (NASDAQ:AWAY) operates as an online marketplace for the vacation rental industry. It has been given an Overweight rating by J.P. Morgan. It is the largest player in the online vacation rental market with a highly transparent subscription-based model.
J.P. Morgan expects a compounded annual growth rate of 23% in revenues and 28% in the company's EBITDA between 2011 and 2014. It also has a recurring revenue business with high visibility. Shares of the company are currently trading at $24.3, and are expected to reach a price target of $35 per share.
ReachLocal (NASDAQ:RLOC) is a provider of online marketing and reporting solutions for small and medium-sized businesses. It has been given an Overweight rating by J.P. Morgan due to its position in the local online ad market. With IMC productivity, an increased penetration of new products and a scale in underclassmen expense, the company is looking to expand its margins and increase productivity. Shares of the company are currently trading at $7, and are expected to go north of $12 per share.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.