These are the 5 internet stocks you should buy right now, according to Citi

Facebook ranked as No. 1 internet stock by bank, which ranks only Twitter as a sell among 16 companies focused on web

Analysts at Citigroup released a ranking of internet stocks Wednesday that investors may want to consider if they’re looking to make money off companies underpinning the vast web.The brokerage has 16 internet stocks in its coverage area, ranging from Facebook Inc. FB, -0.09%   , its top pick, to Twitter Inc. TWTR, -0.13%   , the only stock it rates as a sell.

Many major tech stocks are not included because internet is not the companies’ main focus. For instance, Apple Inc. AAPL, -0.23%   is considered a hardware company even though it continues to expand its online software and services category.

Citi breaks its coverage of these stocks into three main areas: internet media, e-commerce and online travel.

Here are Citi’s top five internet stock picks in order:

Facebook: The social media giant has “significant opportunity in video, Instagram, messaging” and other areas of business, according to Citi. Growth is expected to slow in the near term as Facebook reduces ad load, but that is widely expected. The deceleration is viewed as just a hiccup in the trajectory of an otherwise high-growth company.

Facebook is also still in early stages of monetizing Instagram, its popular photo-sharing app, and messaging app WhatsApp. Last quarter, Facebook reported a 51% increase in revenue to $8.81 billion as it continued to grow mobile users and sell mobile ads. Last summer, it launched Instagram Stories, a feature that mirrors a popular offering from Snapchat, whose parent company, Snap Inc.SNAP, -0.44%  , recently went public in the largest U.S. tech IPO since Facebook’s.

Also Read: Snap stock suffers first major selloff since going public

Citi has a buy rating and $165 12-month price target on the stock. Shares of Facebook gained 0.3% to $137.69 on Wednesday and have increased nearly 16% in the past three months and 30% in the past year, outperforming the S&P 500 index SPX, +0.08%  , which is up 5.5% in the past three months and 20% in the past year.

Alphabet: The Google parent has to tackle increased traffic acquisition costs and decelerating search revenue as it faces new competition in search from companies such as Facebook and Amazon.com Inc. But the company’s mobile search and cloud businesses, as well as YouTube, which will soon launch a subscription-based streaming TV service, are viewed as attractive opportunities overshadowing the problem areas.

Last quarter, Google’s profit margins slipped to 76% from 78% in the year-earlier period. However Citi said “focusing on margin compression misses the big picture.”

The brokerage ranks Alphabet Inc. GOOGL, +0.49% GOOG, +0.40%  a buy with a $985 price target on the stock. Shares of Google have gained 7.5% in the past three months and 20% in the past year, virtually in line with the S&P 500. They increased 0.5% to $855.76 on Wednesday.

Amazon: Amazon’s AMZN, +0.04%  AWS cloud business, dominance of e-commerce, growing influence over the logistics that have long been controlled by United Parcel Service Inc. UPS, +0.16%   and FedEx Corp. FDX, -0.63%   , and its fast-growing media and Prime subscription businesses are all seen as major positives that may propel the stock.

While investments the company makes in original content and other areas related to its expansion, as well as price cuts tied to AWS, may pressure margins near-term, Citi said top-line trends at AWS and retail remain strong. “Expect long-term payoff from these investments, and believe there is potential for material improvement in margins and EPS over the long-term,” the bank said.

Read Also: These stocks are outrunning the bull market with quadruple-digit gains

Citi has a buy rating and $960 target on Amazon stock. Shares of Amazon gained 0.5% to $850.58 on Wednesday and have increased 11% in the past three months and nearly 52% in the past year, outperforming the S&P 500.

Priceline: The travel bookings site is the “clear market leader” in hotel bookings, which Citi said is “the most attractive online travel sector.” Last quarter, Priceline Group Inc.’s PCLN, +0.20%  revenue jumped more than 17% year-over-year, which it attributed to strong growth in hotel revenue. The company did provide an earnings per share outlook for the current quarter that fell short of expectations, but investors seemed to have shrugged that off as Priceline has a history of under-promising and over-delivering.

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The company’s ability to diversify beyond the trip-planning platform, which mirrors that of rivals such as Expedia Inc. EXPE, +0.14%  , is also seen as a noteworthy competitive edge. Citi said the company has a positive record of executing on new initiatives, and may, therefore have success with some of its newer business lines, such as virtual reality and business travel. Last year, Priceline launched a mobile app called Booking Experiences that helps travelers plan their trips with previews of destinations and pop-up notifications providing information when travelers walk past attractions. Augmented reality will enable the company to do this more seamlessly, while virtual reality could help potential travelers explore places before they book.

Citi has a buy rating and $1,880 price target on the stock. Shares of Priceline gained 0.7% to $1,748.29 in afternoon trade and have climbed 13% in the past three months and more than 36% in the past year, outperforming the S&P 500.

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EBay: This is an interesting pick because of the intense competition it faces against much stronger and larger rival Amazon. However, Citi touts eBay Inc.’sEBAY, -0.42%  “modestly improving growth,” potential for “significant capital returns” and value stemming from strategic mergers and acquisitions as reasons why it’s a fairly-valued stock that’s worth buying.

In January, eBay posted a 3.1% increase in revenue for the key holiday-shopping period, marking its fourth straight quarter of top-line growth. The company may not be as big as Amazon, but it is well-positioned for the continued shift to online and mobile shopping, which is increasingly weighing on traditional brick-and-mortar retail companies.

It’s also a much cheaper stock. Citi has a buy rating and $36 price target on eBay. Shares of the online marketplace fell 0.3% to $33.37 on Wednesday and have gained 13.4% in the past three months and 38.6% in the past year, outperforming the S&P 500.

Yahoo Inc. YHOO, -0.09%   and GrubHub Inc. GRUB, +0.60%   are the only two stocks in Citi’s coverage of internet stocks with buy ratings that did not make its top-five list. Verizon Communications Inc.’s VZ, +0.24%  planned purchase of Yahoo will provide cash to shareholders and remove some of the complexity in the business, said Citi, which rates Yahoo a buy with a $49 target. GrubHub is investing in a number of near-term initiatives that could support long-term growth, said the analysts, which have a buy rating and $44 target on the stock.

By Jennifer Booton

Source: http://www.marketwatch.com/story/these-are-the-5-internet-stocks-you-should-buy-right-now-according-to-citi-2017-03-08

Why Google Became Alphabet

G is for Google and C is for Conglomerate. This is how the markets learned their alphabet yesterday.

Google Inc. (GOOGL), which reinvented the way the world accesses information, gave formal notice to Wall Street of its intentions to become a technology conglomerate by announcing a new parent entity – Alphabet Inc.,– that unites its widening interests and product lines. Apart from Google's core search business, the eight companies that comprise Alphabet span a diverse array of industries, from robotics, to life sciences, to healthcare and anti-aging.

In a blog post announcing the move, Larry Page, who is now CEO of the new entity, said Alphabet Inc., would help them take a long-term view and improve the “transparency and oversight” of their actions. The new entity, he wrote, was an “alpha-bet (Alpha is investment return over benchmark), which we strive for!”

Not much will change for investors in the reorganization. According to the SEC filing, each Google Inc. share will be swapped for an Alphabet Inc. share. Thus, the change has minimal consequences in terms of impact to bottom line and company direction.

That then begs the question: why did Google change its name to Alphabet?

The Wall Street Effect

When it debuted on the stock market, Google became Wall Street's darling. Its market capitalization increased by $27.2 billion – giving it a market cap bigger than Ford's (F) and General Motors's (GM) that first day of trading. That number was based on the market's assessment of the company's search business and turned out to be largely correct as Google's prowess in search powered its fortunes over the years

The arrival of the social media brigade, however, blindsided Google. Even as the company was coping with Facebook's (FB) onslaught on its core business, the disintermediation of Web search into mobile apps further eroded Google's bottom line. Google's foray into social media was a disaster, and the company has yet to earn substantial revenues from mobile. In lieu of developing its own product, the company has acquired new companies or announced new ventures in new industries. (See Also: Can Facebook Become The Next Google?)

Perhaps the thinking was that Google could pioneer other industries, just as it started the search industry.

However, the absence of numbers related to the cost and operational expenses of Google's new or acquired ventures has made Wall Street nervous. Company chairman defended the moon shots to investors at this year's shareholders meeting.

The move will help allay the market's fears by streamlining operations and providing investor visibility into the operations of Alphabet Inc.'s new ventures and acquisitions. It will help Alphabet Inc. prove to investors that it can deliver profits even as it explores new markets and avenues for future profits. The company's stock price jumped in record numbers after CFO Ruth Porat spoke about “transparency” in its latest earnings call.

Through reorganization as a conglomerate, the move also lessens the glare of antitrust scrutiny on Alphabet. This is because each company within the Alphabet umbrella makes products for a different industry. Bunching all of them together under the search engine umbrella would have invited greater attention from regulators due to the unique nature of Google's business. With the new corporate structure, Alphabet Inc., can always argue that each company within its organization has operations independent of the search engine.

nventing A New Company Within A Company

Google's founders – Larry Page and Sergey Brin – have always had a healthy disregard for the impossible. They imbued this thought process into their company's DNA and it made Google a fount of innovation within Silicon Valley, a geographic area where innovation is a byword instead of a buzzword.

But it's recent attempts at innovation have flopped. The company's attempts to reinvent itself as a hardware and Internet of Things player have also come under constant scrutiny by the media and Wall Street. Page, who returned as company CEO in 2010, lashed out against the criticism and called for a “safe place” for innovative companies to carry out experiments at Google I/O in 2013.

The separation between the Alphabet Inc,'s main business – search – and other companies provides the company with the “safe place” to carry out experiments. Based on an initial reading, each company within the Alphabet umbrella will be headed by a CEO, who will report into Page. This will allow the respective head to determine the best course of action without worrying about its effect on the search engine cash cow.

The move will also help avoid negative PR through direct association with the search engine business, which makes money by inferring user interests. For example, Google's acquisition of home security company Nest raised privacy concerns.

Besides this, it will also free up Page and Brin from administrative duties at Google and enable them to focus their skill sets and energies on building new products and services. In short, it will be like starting multiple new companies within an existing company all over again.

The Bottom Line

According to the author of Google's ten commandments, Larry Page and Sergey always had a bigger picture of technology's role in the world. “Larry's vision was always to be something like General Electric (GE), and Google was only his first proof-of-concept,” he is quoted in the New York Times.

The reorganization seems to be Page and Brin's attempt to streamline operations to focus energies on new ventures and evolve Google from a one-trick pony to a conglomerate.

By Rakesh Sharma

Source:lhttp://www.investopedia.com/articles/investing/081115/why-google-became-alphabet.asp#ixzz3ifCZbPhl