Internet Stocks to Outperform Again in 2008 - JPM

Analysts at JP Morgan have released their 2008 investment guide for Internet stocks and say following outperformance in 2007 (Internet HOLDRs (HHH) +14% vs. S&P 500 +5%), they expect more of the same this year. Although revenue growth is seen decelerating to 21.2% from 25.6% last year, the analysts expect EPS growth of 34%, compared to only 8% for the S&P 500. Key investment themes include the arrival of new consumers from high-growth emerging markets and a healthy M&A market, based on strong cash flow generation, which will also support share repurchases. Buttressing their outlook is the growth catalyst of rising global broadband penetration.

The analysts' top Internet stock picks for which they have "overweight" ratings include: Google (GOOG), Yahoo! (YHOO), Expedia (EXPE), Omniture (OMTR), Shutterfly (SFLY) and Monster Worldwide (MNST). A doubling of global search revenue to $60B by 2011 (vs. $26.2B in 2007, $30.5B est. for 2008) is projected, as well as a recovery in CPMs after a "muted" 2007. The analysts forecast Google to post year-over-year revenue and EPS growth of 45%/42% in 2008 and 32%/29% in 2009, ahead of the consensus estimate. Their forecast for Yahoo! of 16%/13% in 2008 and 9%/20% in 2009, is below consensus except for '09 EPS growth. Among other Internet heavyweights, the analysts rate Amazon (AMZN) "neutral" and eBay (EBAY) "overweight."