The Zhitong Finance App learned that due to health incidents and in the face of a turbulent stock market, many people are focusing more on high-quality technology companies related to the Internet. UBS (UBS) analyst Eric Sheridan took an in-depth look at internet concept stocks and updated his personal stock arguments. After the fervor, as market optimism wanes, what will happen to these stocks in the future?
Chewy (CHWY.US)
According to the American Pet Products Association (APPA), the total spending of Americans on pets in 2019 was $95.7 billion, and the organization expects it to grow at an annual rate of 5.1% by 2024. By 2025, Chewy's revenue will exceed the market's compound annual growth rate, reaching 15%.
Sheridan downgraded Chewy from “neutral” to a “sell” rating and maintained a target price of $75. The analyst said that Chewy should achieve positive free cash flow in 2021, EBITDA is expected to be corrected, and profit margins will continue to grow.
But he warned that in the past three months alone, Chewy has accumulated a 68% increase, which means that while there are plenty of growth opportunities in the online pet sector, its risk-reward profile is no longer favorable. Additionally, the company is facing potential headwinds in 2021. Benefiting from an early push in demand during health events, Chewy achieved outstanding performance last year. However, there is still uncertainty about whether the company can continue to maintain its current profitability after the health incident has subsided.
Fiverr International Ltd (FVRRR.US)
Fiverr provides freelancers with a platform to serve customers around the world and is regarded as an important player in the gig economy. During the health incident, many freelancers and small businesses used Fiverr to survive. Unlike other outsourcing platforms, Fiverr's initial task price was only 5 US dollars. As user reputation increases, higher labor prices can be set.
Sheridan downgraded Fiverr from “neutral” to a “sell” rating and raised the target price from $148 to $190. The analyst said that the company should be able to maintain 30% revenue growth over the next five years, and the adjusted profit margin is expected to reach at least 25%.
However, Sheridan said that according to the current share price level, Fiverr expects revenue to reach 1.3 billion US dollars by 2025, while the bank's forecast is 750 million US dollars. This means that by 2021 and 2022, Fiverr's revenue will need to increase by 50% to 60% to justify its valuation.
Peloton Interactive Inc (PTON.US)
Peloton, an American interactive fitness platform focused on manufacturing high-tech exercise bikes, has maintained a strong growth momentum under the opportunities brought about by health incidents. Last year, Peloton ushered in its strongest growth season since listing. Its stock price performance was extraordinary. Since listing in June 2019, the stock price has nearly tripled. Needless to say, Peloton has become a fitness leader, fueled by the public health crisis.
Sheridan downgraded Peloton from “neutral” to a “sell” rating and raised the target price from $115 to $190. The analyst believes Peloton is expected to seize more market share from traditional fitness companies and increase the adjusted EBITDA margin from 7.7% this year to 9.7% in 2024. Furthermore, through international expansion and the launch of new products, the company is expected to achieve a significant increase in revenue, and digital products will provide a more important driving force for its revenue growth.
However, Sheridan warned that Peloton's stock has accumulated a cumulative increase of about 160% over the past six months, and its current stock price already reflects many favorable factors such as strong future sales performance, user growth, and market leadership.
Take-Two Interactive Software (TTWO.US)
As a leading video game manufacturer, Take-Two Interactive owns some very popular e-sports games, and also has exclusive rights to NBA 2K basketball, which has always been a bestseller. The company signed an agreement with the NBA to launch the NBA 2K League, the first e-sports league officially approved by a professional sports organization, and an important step in e-sports entering the mainstream.
Sheridan downgraded Take-Two Interactive from “neutral” to a “sell” rating and maintained a target price of $200. The analyst believes the video game industry has been well-positioned over the past few years as cloud technology improves, free-to-play features, and eSports grows. As an industry leader, Take-Two will be able to provide better product performance than similar companies.
The stock has increased by 37% cumulatively over the past six months, so the market has higher expectations. Revenue is expected to grow in the next five years by high single digits. The adjusted gross margin is expected to be 61%, and the adjusted EBITDA margin will reach 33%.