Tech Continues to Shine—Discover the Hidden Gems

02/04/2016 9:44 am EST


Michael Berger

President & Founder,

Michael Berger of has revised his outlook for the Internet subsector during 2016. Here, he highlights several of his favorite large-cap and small-cap Internet stocks and outlines why he expects to see online market share gains continue to drive e-commerce growth.

After analyzing earnings results from several technology juggernauts, we revised our outlook for the Internet subsector during 2016. We continue to maintain a positive view on Internet fundamentals as we head further into 2016 and are monitoring the performance of large-cap and small-cap Internet stocks after large-caps significantly outperformed small-caps during 2015.

Although we expect to see continued strength in large-cap Internet stocks in 2016, we do not expect to see them perform as well as they did during 2015. Our favorite large-cap stocks are Facebook, Inc. (FB) and, Inc. (AMZN). Our favorite small-cap stocks are Wayfair, Inc. (W) and Ltd. (WIX).

Expect Mid-teens Global Online Advertising Growth

During 2016, we expect to see double digit global online advertising growth. This growth will be driven by strength in social media, mobile, and video. When it comes to judging performance, we think the market will be increasingly focused on user growth, mobile advertising, and local advertising growth.

User growth has been a headwind for several stocks during 2015, specifically Twitter, Inc. (TWTR), Pandora Media, Inc. (P), and Yelp, Inc. (YELP). We expect FB to continue to see strength driven by social share gains, continued monetization of Instagram, strength in video, and potentially Oculus.

Online Share Gains to Drive E-commerce Growth

During 2016, we expect to see online market share gains continue to drive growth and AMZN will be a major beneficiary of this. AMZN continues to grow at twice the rate of overall e-commerce. We expect to see continued strength in retail sales, margin improvement, and strength in Amazon Web Services.

Our favorite small-cap e-commerce stocks are W and WIX. Our investment thesis for W is based on our expectation for: continued upside to estimates (we believe current estimates are conservative), advertising leverage which will be driven by increasing repeat orders, and potential for easing competitive concerns combined with a high short interest.

We are favorable on WIX due to the continued strength in subscriber growth, easing pricing comparables, and expect to see continued advertising leverage.

Michael Berger, Founder and President,

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