Wolfe names favorites for growth in eCommerce and communication categories

Wolfe Research initiated coverage on 22 large and small/mid-cap internet names, singling out several for the opportunity for growth thanks to generative artificial intelligence (GenAI), and others that will lag the sector given competitive pressures and macro headwinds.

Wolfe rates the eCommerce subsector with a Market Weight rating as discretionary spending will remain pressured and “stretched” consumers will shift spending towards services and experiences and away from physical goods.

Within this group, Amazon (NASDAQ:AMZN) is Wolfe’s Top Pick with an Outperform rating on the expectation that the company will experience retail margin expansion and gain market share in ecommerce thanks to faster delivery speeds and the shift to everyday essentials. The firm is neutral, however, on eBay (NASDAQ:EBAY), Etsy (NASDAQ:ETSY) and Chewy (CHWY), rating each as Peer Perform with the consumer background remaining a headwind for shares in this category.

Online advertising, which includes names like Google (GOOG), Meta (NASDAQ:META), and Pinterest (NYSE:PINS) is given an overall rating of Overweight as product driven catalysts are aided by secular tailwinds and the political cycle. Wolfe assigns an Outperform rating to Google (GOOG) and Meta (META) as GenAI will promote user engagement and market share in cloud computing functions. Pinterest (PINS), Snap (SNAP), and Yelp (YELP) are Peer Perform as shifting advertising budgets and infrastructure spending will curb share gains.

Mobility and Delivery is rated as Overweight by Wolfe, with healthy growth rates attributed to resilient spending and margin expansion. DoorDash (NASDAQ:DASH) and Uber (NYSE:UBER) are Wolfe’s Top Picks in this subsector as a competitive moat, product initiatives, and improving profitability will continue to insulate DASH and UBER from the possibility of a deteriorating consumer backdrop.

Within the Subscription subsector, rated overall as Market Weight, Wolfe pulls out Match (NASDAQ:MTCH) and Bumble (BMBL) with Outperform ratings, attributing the bullish rating for both to payer growth and market expansion, specifically for Match (MTCH) as its Hinge platform contributes to Match’s overall profit amid its expanding global footprint.

Along with initiations, Wolfe also identified seven key themes that will be relevant in 2024 and 2025 to include GenAI, product development, regulation, sector maturity, profitability, capital allocation, cloud computing, and rising secular trends. Industry data cited by Wolfe indicates that total infrastructure spending on AI technologies could reach ~$190B by 2030, representing a 29% CAGR from 2024 estimated levels.

Of the remaining names not highlighted in this report, Wolfe gives an Outperform rating to Magnite (MGNI), PubMatic (PUBM), Shopify (SHOP), and The Trade Desk (TTD).

A neutral Peer Perform rating was assigned to Maplebear/Instacart (CART), Duolingo (DUOL), Lyft (LYFT), Peloton (PTON), Roblox (RBLX).