Buying so-called “FANG” stocks has been a winning strategy, says Barclays’ new internet analyst, though he warns that Google and Facebook (FB) could be challenged in growing digital-advertising revenue through 2020.
Ross Sandler, the Barclays analyst, initiated coverage late Tuesday on Amazon.com (AMZN) and eBay (EBAY) with overweight ratings. Sandler also started coverage of Google parent Alphabet (GOOGL) and Facebook at overweight.
“We think the appeal of FANG is not only its strong fundamentals, but also its unique ability for investors to size up/down positions quickly due to its larger market cap and liquidity,” said Sandler. “In 5 of the past 7 years, FANG has outperformed the non-FANG stocks in our universe on a market cap-weighted basis, and we expect that trend to continue with more power accruing to the largest names in the space of late from key technology trends and consolidation.”
Facebook shares rose 0.6% in late afternoon trade on the stock market today, hitting a new all-time high. Alphabet climbed 1.2%, retaking its 50-day moving average after tumbling last week on YouTube ad concerns. Amazon rose 2.2% to 875, setting record highs. Netflix grew 1%, on track for an all-time closing high.
Even so, Sandler says Google and Facebook will face hurdles.
“In order for Facebook, Google and others to hit consensus figures for 2020, mobile advertising needs to add around $42 billion in aggregate in North America alone and get to the same size as the TV advertising market today,” Sandler said in a report.
“For Facebook and Google to hit consensus estimates from now until 2020, they need to take nearly 80% of every incremental dollar of mobile ad spend,” he added. “This doesn’t seem to offer a significant amount of upside given the emergence of Snap (SNAP) and Amazon in the mobile ad space…