JMP Securities‘s Ronald Josey today kicked off coverage of Internet stocks, starting Google (GOOG), AOL (AOL), eBay (EBAY), Priceline (PCLN), and Zillow (Z) as his favorite picks, with Market Outperform ratings, with eBay his “top pick” among those.
Josey focuses on what he perceives as a speed-up in the shift of advertising and e-commerce to online, propelled by the rise of “connected devices” and mobility.
Josey’s forecasts don’t actually show that speed-up, but they do make the case that both advertising online and e-commerce can see double-digit percentage gains for years.
Here’s Josey on online advertising:
Domestically, we project the 2013 online ad market to grow 16.6% to $43.4 billion and for the online advertising market to grow by double-digits each year through 2017. Online advertising is now the second largest ad medium in the U.S. and we project the market to grow at a three-year, 2012-2015 CAGR of 15.6%. TV advertising is the largest ad market and eMarketer projects $66.4 billion in TV ad spend this year, +2.8% Y/Y. Across the Internet advertising landscape, we� project domestic search advertising to remain the largest Internet advertising vertical domestically, growing 14% in 2013 to $19.6 billion and for display to grow 9% to $13.2 billion. Within display, we believe online video ads are the fastest growing online ad format and we project video ads to grow 16% Y/Y to $2.5 billion in 2013 [...] Within display advertising, growth is slowing and we believe the process for selling traditional display ads is undergoing a fundamental change. Advertisers are consolidating around fewer publishers and we believe these publishers are devoting a larger percentage of inventory to programmatic buying to create improved yield.
E-commerce is growing faster than total U.S. retail sales:
eCommerce remains one of the largest opportunities across the Internet and, in our view, we are entering a new phase of innovation due to a confluence of trends around mobile, distribution, visualization, merchandising, payments, and social, to name a few. We project domestic eCommerce to reach ~$400 billion in 2017. This represents a five-year (2012-2017) CAGR of 9% compared to ~2% for overall retail sales (Figure 17). Despite this growth, we project
eCommerce to remain less than 12% penetrated overall.
Both areas are being advanced by a “tipping point” in the use of mobile devices that always or almost always have an Internet connection:
2012 was the perfect storm for mobile Internet adoption, in our view. Hardware advances, faster network speeds, and improved Internet services built for a multi-screen connected user (desktop, tablet, smartphone, and TV) all led to increased mobile usage. From a hardware perspective, total smart device shipments rose to 840 million in 2012, +46% Y/Y, and are expected to eclipse one billion in 2013 (Figure 7). Over 718 million smartphones shipped globally in 2012, +45% Y/Y, representing ~41% of total mobile phones shipped (IDC). While over 120 million tablets shipped in 2012, +70% Y/Y, led by the iPad, the Nexus 7, and Amazon�s� Kindle Fire family, and easy, always on, Internet access is now expected with most device sales. Meanwhile, we note that PC shipments actually declined 1.1% in 2012 and are projected to be relatively flat in 2013. As shown in Figure 8, JMP Wireless & Cloud Computing Analyst Alex Gauna projects smartphone shipments to exceed feature phones this year.