These stocks benefit from disruptive technology.
Bank of America is monitoring a number of themes analysts believe will create long-term value for investors, and the firm’s top-performing theme over the past four years is the sharing economy. The sharing economy is a term used to describe activities and services that are shifting to online platforms, including on-demand, rental, gig, access, collaboration, e-commerce, circular and peer-to-peer business models. These models are unlocking value in previously unused assets, connecting customers and businesses more efficiently and disrupting traditional business at an impressive clip.
Amazon.com (ticker: AMZN)
Amazon may be the quintessential sharing economy stock pick. AWS is the clear global leader in cloud services, Amazon is the top player in e-commerce retail and Amazon is a major force in digital media. Analyst Justin Post estimates AWS revenue will reach $25.6 billion in 2018, and high-margin AWS revenue will help boost Amazon’s overall margins and drive profitability over time. Post says Amazon is the one FANG stock most insulated from competitive pressures. Bank of America has a “buy” rating and $2,200 price target for AMZN stock.
Alphabet, the parent company of Google, has a booming online advertising business, but it’s Google’s cloud computing and driverless vehicle businesses that appeal most to sharing economy investors. Post says Google’s cloud business will enter 2019 at an annual revenue run rate of at least $6 billion and could generate $10 billion in 2019. In the longer term, Bank of America sees cloud services as a potentially $1 trillion global opportunity. Earlier this year, Navigant Research named Alphabet subsidiary Waymo as the market leader in driverless vehicle technology. Bank of America has a “buy” rating and $1,390 price target for GOOGL stock.
Expedia Group (EXPE)
Private startup Airbnb may be the best example of the sharing economy in the travel space, but Post says Expedia is the top pure-play online travel stock for long-term investors. In addition to its primary platform, Expedia owns top online travel brands such as Orbitz, HomeAway, Travelocity, Hotels.com and Trivago. Post says travel bookings will continue their secular transition to online platforms, and investors shouldn’t be deterred by earnings headwinds created by Expedia’s ramping investments. Bank of America has a “buy” rating and $155 price target for EXPE stock.
GrubHub (GRUB)
The GrubHub app has made food delivery and takeout easier than ever. GrubHub serves a network of nearly 80,000 U.S. restaurants and has an active user base of more than 15 million diners. Analyst Nat Schindler says take-out has been a huge trend in the restaurant industry in recent years, and GrubHub is well-positioned to capture an even larger share of high-margin take-out revenue in the future. With GRUB stock up 161 percent in the past year, near-term upside may be limited, but Bank of America has a “neutral” rating and $139 price target.
eBay (EBAY)
The most recent quarterly report from eBay revealed slowing gross merchandise volume growth for eBay’s e-commerce platform, but Post says advertising and improving monetization will drive upside for EBAY stock in coming quarters. Post says eBay’s strong balance sheet and healthy cash flow suggest the potential for increasing capital returns over time. He says the stock’s attractive valuation and relatively low earnings multiple make it a low-risk defensive play on the secular growth trend in e-commerce. Bank of America has a “buy” rating and $44 price target for EBAY stock.
Netflix (NFLX)
Netflix is coming off a difficult second quarter, but Schindler says NFLX stock could resume its bullish long-term trajectory as soon as next quarter. Netflix is the market leader in subscription-based streaming video and one of the few pure-plays in the space. It has a market-leading global subscriber base of more than 100 million users and an unrivaled library of original content. Post says Netflix should continue to expand its global empire and enjoy significant pricing leverage for at least another five years. Bank of America has a “buy” rating and $410 price target for NFLX stock.
PayPal Holdings (PYPL)
The sharing economy will impact several markets, but a common element in each is digital payments. Analyst Jason Kupferberg says there is no other company better positioned to ride the wave of digital payments than PayPal. Kupferberg says PayPal has demonstrated consistently impressive revenue growth in the high-growth business of digital payments. PayPal has both opportunity for long-term margin expansion and an impressive balance sheet that gives the company financial flexibility. Bank of America has a “buy” rating and $98 price target for PYPL stock.
Match Group (MTCH)
Match Group is a dominant force in online dating. Owner of brands such as Match.com, Meetic, OKCupid, Tinder and POF, Match controls four of the top five highest-grossing dating apps in North America. Despite increasing competition, Schindler says Match has a near monopoly over the core online dating demographic and has a relatively low risk of disruption compared to other e-commerce companies. Match is highly profitable and generates significant cash flow, and Schindler says online dating awareness and engagement will continue to rise. Bank of America has a “buy” rating and $46 price target for MTCH stock.
Box (BOX)
Box is a leading cloud platform for file sharing, storage and collaboration. Analyst Kash Rangan says Box’s cloud content management business differentiates the company from other cloud companies. He says Box’s large and growing user base provides the company with upsell opportunities, and the company’s focus on security and a consumer-friendly, enterprise-quality user interface is particularly appealing to customers. Although Box’s margins lag those of software-as-a-service peers, Rangan says greater visibility on bookings in coming quarters could trigger earnings multiple expansion for Box. Bank of America has a “buy” rating and $30 price target for BOX stock.
Microsoft Corp. (MSFT)
Microsoft may not inspire the kind of investor excitement that younger sharing economy companies do, but Rangan says cloud and gaming growth should help Microsoft generate sustainable double-digit annual growth in revenue, earnings per share and free cash flow. Rangan says Microsoft could reach $9 per share in free cash flow by fiscal 2023. MSFT stock should also be supported by the company’s aggressive capital return program, which included $5.3 billion in buybacks and dividend payments in the most recent quarter. Bank of America has a “buy” rating and $134 price target for MSFT stock.
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10 Top Stock Picks for the Sharing Economy originally appeared on usnews.com
