In this piece, we will take a look at the top internet stocks to buy according to Cantor Fitzgerald.
The rise of the internet and its ubiquity in our daily lives is perhaps the greatest technological innovation of the 21st century. The transformation of the internet into what can very well be described as a utility was unthinkable even during the peak of the dotcom era; however, the firms that started back then or those that leveraged it to mold their business model are among the largest and most valuable companies in the world right now.
The clearest example of this comes through the share price of the world’s largest eCommerce retailer. Founded by Jeff Bezos in 1994, this stock ranks 1st on our list of Beyond the Tech Giants: 35 Non-Tech AI Opportunities. Its market capitalization currently sits at a cool $1.96 trillion, and while it doesn’t make it the most valuable company in the world, the firm’s unique ability in being able to merge the high volume and total addressable market (TAM) components of the eCommerce and logistics industry with the high growth, high margins offered by cloud computing has introduced a lot of stability into its shares. So much so that its peak to trough share price fall this year wiped off 19% of its value, while Wall Street’s favorite AI GPU designer marked a much sharper 27% drop. In absolute terms, this internet stock has delivered 2,077x in returns since its IPO, which is a cool way to turn a dollar into two grand.
Yet, it’s still not the only internet stock that’s transformed Wall Street and the world. Two other dominant internet stocks are the world’s largest social media company founded by Mark Zuckerberg and the world’s largest search engine provider set up by Larry Page and Sergey Brin. Since they started trading, these two firms’ shares are up by 1,275% and 5,608%, respectively while their founders are among the richest individuals in the world.
This is the power of the internet. It has spurred new industries, created billionaires, and even has its currencies through cryptocurrencies. Safe to say, the internet is here to stay, whether it’s for posting memes or gaining access to healthcare from remote locations. But even though it’s been around for nearly three decades now, like the broader industry, the internet continues to evolve and open new frontiers.
While it’s lost some steam as the world dealt with the dual crises of the pandemic and high interest rate, the advent of fifth generation (5G) internet technologies is believed to expand the use of the internet across a diverse range of industrial and consumer applications. As per McKinsey, the Internet of Things (IoT) industry could create a value ecosystem that is maximally worth $12.5 trillion by 2030 end. Within this, factory usage of IoT accounts for more than a quarter of the value pie or $3.3 trillion. Application wise, the research firm believes that business to business or B2B applications hold the greatest potential for IoT value creation as they account for 65% of its value creation estimate.
Of course, the industrial sector is not the only one that’s being disrupted by the internet. Another key area where it is making its impact is banking. One of the oldest industries in the world, banks stand neck in neck with governments when it comes to bureaucratic processes, high overhead costs, slow decision making, and slow response times. This has proven to be quite a disadvantage for banks, as according to additional research conducted by McKinsey, internet companies like Google and Tencent are already offering banking related services where they can. Additionally, banks are also being challenged by financial technology firms, with the number of such companies growing from 25 in 2017 to 274 in September 2022 for a combined market value of $1 trillion. This shift to digital banking has also impacted traditional bank valuations, with bank stocks trading at a 70% discount in 2022. The research firm believes that banks that are successfully able to transition to a digitized model can unlock $20 trillion in benefits.
These benefits have already manifested. For instance, by adding language processing software to its business, one bank was able to remove 360,000 lawyer hours. As a whole, it is estimated that through digital banking, commercial banks can improve their margins by as much as 25 percent. For the banking industry, these are life or death improvements as during the 15 years that ended in 2022, bank margins had dropped by 25 percent and are on track for another 20 percent decrease over the next decade.
Finally, due to its ubiquity, internet stocks cannot be classified in one category. They range from social media firms to eCommerce companies, streaming services, and cloud providers. All these firms have their unique valuation drivers, which means that consumer exposure and heavy enterprise spending often prove to be the few broad based catalysts that apply to all firms. On this front, Cantor Fitzgerald, a firm that managed $13.2 billion in assets as of December 2023 has started to focus on some top internet stocks.
Driving its strategy is the belief that “despite strong performance over the last 18 months, valuations in internet names are fairly reasonable and should benefit from the expectation for upcoming rate cuts, tempered by decelerating top-line growth and as benefits from widespread cost-cutting fade.” So let’s take a look at Cantor’s top internet stocks.
Copyright: rvlsoft / 123RF Stock Photo
Our Methodology
To compile our list of Cantor Fitzgerald’s top internet stock picks, we ranked the firm’s 22 internet stocks by their share price upside for Cantor’s share price target for all the stocks except for stock number 17. This is because the share price target for this stock wasn’t available, and as a substitute, the average analyst share price target was used to calculate the upside/downside percentage.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
22. Airbnb, Inc. (NASDAQ:ABNB)
Number of Hedge Fund Holders In Q2 2024: 63
Share Price Target Upside: 20%
Cantor’s Rating: Underweight
Cantor’s Share Price Target: $94
Airbnb, Inc. (NASDAQ:ABNB) is a travel accommodation provider that is one of the largest companies of its kind. However, the market hasn’t been kind to the shares lately, as they are down by 18.9% over the past year and 12.7% year to date. This has been fueled by several concerns, most notable of which are Airbnb, Inc. (NASDAQ:ABNB)’s rising costs and its inability to match these with revenue growth. For instance, between 2022 and 2023, the firm’s revenue grew by 17.8% to sit at $9.9 billion at year end. However, during the same period, its operating expenses grew by 34%, meaning that Airbnb, Inc. (NASDAQ:ABNB)’s operating income dropped by 19.7% to $1.5 billion. This means that moving forward, the firm has to focus on growth initiatives if it is to resume its share price growth. Naturally, Cantor is also underweight on the stock, with its $94 share price target suggesting that the shares are trading at a 23% premium to Airbnb, Inc. (NASDAQ:ABNB)’s peers.
Airbnb, Inc. (NASDAQ:ABNB)’s management is aware of the need to drive growth, and here’s what it had to say during the Q2 2024 earnings call:
“And to answer your question about expansion markets, maybe a framework I can give to think about how we want accelerate growth, listen, we want to be growing a lot fast than we are. We want to be growing in healthy double-digit growth – double-digit growth and I think we can. And the way we’re thinking about accelerating growth is through short-term, medium- term and long-term. Short-term is really optimizing our core business. It’s really around affordability, about having high quality stays and just conversion rate increases. Long term is really about new products and services. So, the question you asked about international is interesting because it’s kind of like a medium term horizon, like one to three years.
And to frame this, Airbnb is in 220 countries and regions. We’re one of the most global companies in the world on the Internet, 220 countries and regions. We operate nearly in every country in the world. But there’s only really five markets where we’re penetrating. And those markers are the US, UK, France, Canada and Australia. And you’d think like, well, if there was one company in the world that would truly be like have a lot of international penetration it’d be a global travel network, right? A website where you want to travel, use one platform to travel around the world. So there’s a number of countries. Just to give you a couple of examples of our some big expansion markets, Germany and Brazil we’ve seen a lot of progress. Those are huge travel markets and the biggest travel markets in the world.”
21. Zillow Group, Inc. (NASDAQ:ZG)
Number of Hedge Fund Holders In Q2 2024: 57
Share Price Target Upside: -14%
Cantor’s Rating: Neutral
Cantor’s Share Price Target: $47
Zillow Group, Inc. (NASDAQ:ZG) is a real estate company that works with agents, renters, home buyers, and others. This means that the stock thrives when rates are low and economic activity is robust enough to support home buying activity. It also means that Zillow Group, Inc. (NASDAQ:ZG) is exposed to broader trends that might affect this industry, as has been the case through a historic settlement by the National Association of Realtors (NAR) to home buyers. This could impact Zillow Group, Inc. (NASDAQ:ZG)’s business model as it also facilitates purchases and sales as the deal covers the commissions that agents receive. The stock has suffered in an era of high rates and inflation, which has depressed home buying activity. However, this hasn’t stopped Zillow Group, Inc. (NASDAQ:ZG) from adapting to new initiatives such as the Flex marketplace for agents that does not require them to pay upfront for leads and instead charges a hefty commission (depending on geography) if a sale is closed. This has proven to be quite popular, as Flex revenue grew by 45% annually (as per Piper Sandler) in Q2.
Here’s what Zillow Group, Inc. (NASDAQ:ZG)’s management had to say about Flex during the earnings call:
“Our Premier Agent partners represent some of the best, most professional agents in real estate who we believe are poised to take share in the evolution the industry is experiencing. Recall that not every real estate agent is a Zillow Premier Agent partner. In fact, since 2015, we’ve shrunk our active partner base by roughly 60%, while our Premier Agent revenue has grown by more than 2.5 times over the same timeframe. We’ve oriented Premier Agent around some of the best agent teams, those that we believe provide superior customer service, understand the industry and their local market, have a proven ability to scale and make the most money to invest alongside us. The top 20% of agent teams handle 80% of transactions and nearly four in five of those Premier Agent partners are in that top tier.”
20. Snap Inc. (NYSE:SNAP)
Number of Hedge Fund Holders In Q2 2024: 44
Share Price Target Upside: -14%
Cantor’s Rating: Neutral
Cantor’s Share Price Target: $8
Snap Inc. (NYSE:SNAP) is one of the more popular social media services, especially among young users. Its key differentiation when compared to peers such as Instagram is the ability of users to maintain their privacy while sharing their daily lives with friends. Yet, Snap Inc. (NYSE:SNAP)’s consumer centered model also means that the stock is vulnerable to cyclical downturns. Its primary source of revenue is advertiser spending, and this typically picks up when inflation is low and businesses are performing well. Consequently, Snap Inc. (NYSE:SNAP)’s shares are down 42% year to date and flat over the past twelve months. The stock has been quite volatile as well, as it dropped by 34% in February after Snap Inc. (NYSE:SNAP)’s fourth quarter 2023 results saw it miss revenue estimates of $1.38 billion by posting $1.36 billion and meeting analyst revenue guidance. However, the shares soared by 50% in April after its midpoint Q2 revenue guidance of $1.25 billion beat analyst estimates of $1.22 billion and optimism for sales of features such as direct advertising that are more stable than other advertising revenue.
Snap Inc. (NYSE:SNAP)’s management shared details for direct advertising during the Q2 2024 earnings call:
“The growth of our community, the progress we have made with our direct response advertising business, and the success of our Snapchat Plus subscription business that now reaches more than 11 million subscribers, all contributed to revenue growth of 16% year-over-year, despite the impact of a weaker brand advertising environment for certain consumer discretionary verticals. We are pleased with the ongoing progress made in our DR business as well as well as the continued rapid growth in the total number of active advertisers which more than doubled year-over-year in Q2. We believe this progress validates our strategy of focusing on growing our community and engagement, investing in our Direct Response advertising products, and diversifying our revenue growth with our subscription offering.”
19. eBay Inc. (NASDAQ:EBAY)
Number of Hedge Fund Holders In Q2 2024: 38
Share Price Target Upside: -8%
Cantor’s Rating: Neutral
Cantor’s Share Price Target: $58
eBay Inc. (NASDAQ:EBAY) is one of the oldest eCommerce marketplaces in the industry. It is one of the original players in the market, but unlike Amazon, has not transformed into a trillion dollar company due to lower user and merchant use and no cloud computing SaaS tailwinds. Yet, due to its eCommerce business, eBay Inc. (NASDAQ:EBAY) shares key fundamentals of its hypothesis with Amazon. Primarily, these are operating margins, growth, and merchandise volume. Strong performance on these fronts means that the shares do well, and this has also been the case in 2024 with eBay Inc. (NASDAQ:EBAY)’s stock being up by 44% year to date. At the heart of investor optimism is the firm’s strategy to grow its volume and margins by attracting high spenders on its platform via Focus Categories. These cater products specific to customer needs, and try to entice large spenders with the hope of spillover in other segments. eBay Inc. (NASDAQ:EBAY) is also aiming to cut down costs via tighter operating margins, and improving its customer recommendation through Gen AI.
eBay Inc. (NASDAQ:EBAY)’s management shared details for its cost reduction initiatives during the Q2 2024 earnings call:
“Shifting to profitability, non-GAAP gross margin declined roughly 30 basis points year-over-year in Q2 due to tax-related matters, including Canadian digital sales tax expenses recognized retroactively in 2022, traffic acquisition costs associated with a ramp in offsite [ph] ads, and foreign exchange headwinds. These headwinds were partly offset by operational efficiencies, including lower cost of payments and lower depreciation expenses.
Non-GAAP operating margin was 27.9% in the quarter, improving 1 point year-over-year, as operational efficiencies, including our structured cost program, more than offset the higher cost of revenue of foreign exchange headwind of approximately 40 basis points and reinvestments in our full frontal marketing initiatives. As a result, non-GAAP operating income grew 5% year-over-year in Q2, and non-GAAP earnings per share grew by nearly 15% to $1.18.”
18. Booking Holdings Inc. (NASDAQ:BKNG)
Number of Hedge Fund Holders In Q2 2024: 96
Share Price Target Upside: -7%
Cantor’s Rating: Neutral
Cantor’s Share Price Target: $3,519
Booking Holdings Inc. (NASDAQ:BKNG) is one of the leaders in the global travel industry space and enjoys brand recognition in consumer travel recommendations and other tertiary services. Its software centered business means that operating margins and volume are key to its hypothesis. Booking Holdings Inc. (NASDAQ:BKNG) has to ensure that it is competitive in the market with low margins, and continuously develop new products or features to engage, retain, and grow users. On the former front, the firm’s trailing twelve month operating margin is 28.5% which is a cool 17 percentage points higher than its close rival Expedia’s operating margin of 11.2%. This is primarily because Booking Holdings Inc. (NASDAQ:BKNG) enjoys economies of scale, with its revenue being nearly 2x of Expedia’s. The firm has also been introducing AI powered product experiences through Trip Planner, and owing to its vast user base, Booking Holdings Inc. (NASDAQ:BKNG) benefits from access to data to further fine tune its AI features.
Wedgewood Partners mentioned Booking Holdings Inc. (NASDAQ:BKNG) in its Q2 2024 investor letter. Here is what the firm said:
“Booking Holdings contributed to performance as travel spending across the U.S. and Europe remains quite healthy, whereas the Company took share in alternative accommodations, and looks set to expand margins after a few years of reinvestment. The Company has also been aggressively reducing its share count at reasonably attractive valuation multiples. Booking should be able to compound earnings at an attractive, double-digit rate for the next few years given these various initiatives.”
17. Thomson Reuters Corporation (NYSE:TRI)
Number of Hedge Fund Holders In Q2 2024: 22
Share Price Target Upside: -5%
Cantor’s Rating: Underweight
Average Analyst Share Price Target: $165.84
Thomson Reuters Corporation (NYSE:TRI) is a business intelligence company that also operates one of the most well known news wire services in the world. It is a well diversified business, that depends on providing research, digital transformation, news, and legal and tax information. Thomson Reuters Corporation (NYSE:TRI) benefits from the fact that news accounts for just 11% of its revenue as of Q2. News is a very volatile industry, and publishers often struggle to remain profitable. However, 42% of Thomson Reuters Corporation (NYSE:TRI)’s revenue comes from its business with law firms and governments through research and other products. This creates a lot of stability for its revenue, and given its brand name, Thomson Reuters Corporation (NYSE:TRI) also benefits from goodwill in the form of trust that can be hard to emulate by new entrants in the industry. Additionally, 77.7% of Thomson Reuters Corporation (NYSE:TRI)’s revenue during H1 2024 was from recurring line items, which means that the firm simply has to retain existing partnerships to ensure stable performance.
ClearBridge Investments mentioned Thomson Reuters Corporation (NYSE:TRI) in its Q4 2023 investor letter. Here is what the firm said:
“Additional outperformers included RELX, a publisher of law and related business trade information, and Thomson Reuters, a business services conglomerate with leading positions across media and other industry verticals, which own large, proprietary data sets and stand to become key beneficiaries of the processing power of the large language models that drive generative AI. These companies are rolling out new, AI-enhanced products at higher prices which should positively impact earnings in the near term.”
16. Etsy, Inc. (NASDAQ:ETSY)
Number of Hedge Fund Holders In Q2 2024: 36
Share Price Target Upside: -3%
Cantor’s Rating: Neutral
Cantor’s Share Price Target: $50
Etsy, Inc. (NASDAQ:ETSY) is a specialty eCommerce company that focuses on selling hard to find and specialty items. This creates a double edged sword for the firm since while it provides it with a niche market in which Etsy, Inc. (NASDAQ:ETSY) can dominate, it also exposes the firm to a highly cyclical market that only does well when inflation is dropping and consumer spending is high. Consequently, Etsy, Inc. (NASDAQ:ETSY)’s shares are down by 33% year to date and have lost 16.41% over the past year as investors wait for the economy to improve before betting on the firm again. However, Etsy, Inc. (NASDAQ:ETSY) is also trying to diversify its business, and these initiatives are key to its hypothesis. The firm is focusing on onsite adds to further monetize its sellers, operating a gift mode to capitalize on its strength of specialty items with a high volume opportunity, and expanding users’ ability to make payments on its platform.
ClearBridge Investments mentioned Etsy, Inc. (NASDAQ:ETSY) in its Q1 2024 investor letter. Here is what the firm said:
“Online marketplace Etsy also saw weaker performance as consumer preferences for goods lagged market expectations. However, we think there is substantial opportunity for the company to reaccelerate growth and increase margins as it extracts greater economic rents from its two-sided marketplace for artisanal goods due to commanding market share, lack of direct competition and support from new activist investors.”
15. Shopify Inc. (NYSE:SHOP)
Number of Hedge Fund Holders In Q2 2024: 56
Share Price Target Upside: -2%
Cantor’s Rating: Neutral
Cantor’s Share Price Target: $70
Shopify Inc. (NYSE:SHOP) is a Canadian eCommerce company with operations in the US as well. The firm has set itself apart from other retailers, apart from Amazon, through its ability to offer merchants a one stop solution for analytics to generate consumer insights and run their marketing campaigns. Additionally, Shopify Inc. (NYSE:SHOP) has also started to offer payments on its platform, joining a series of retailers and internet companies that offer banking related services when possible (as we alluded to in our introduction). Combined, these value add ons to Shopify Inc. (NYSE:SHOP) allow the business a wide moat that enables it to grow market share and retain merchants as well. However, its business is highly cyclical and is vulnerable to downturns in consumer spending. Consequently, the stock is down 1.76% year to date, with an 18% share drop in May following revenue growth guidance of 19.5% for Q2 which marked a deceleration over previous results. This was based on slower spending in Europe, and Shopify Inc. (NYSE:SHOP) has also been recovering from overspending during the pandemic by tightening the belt lately.
Polen Capital mentioned Shopify Inc. (NYSE:SHOP) in its Q2 2024 investor letter. Here is what the fund said:
“Shopify’s business model combines 1) a mission-critical software business where merchants can run all their business operations from one dashboard and 2) a payments business with a long runway to increase attach rates and grow alongside merchants. Additionally, we believe the business possesses significant optionality to continue attaching existing merchant solutions and adding more merchant services as high-margin cross-sells. With several powerful tailwinds at their back (e-commerce, mobile commerce, social media, digital payments, seamless omnichannel, DTC, cloud software digitization) and a highly scalable business model, we think their growth will likely be stronger for longer than investors expect.”
14. Expedia Group, Inc. (NASDAQ:EXPE)
Number of Hedge Fund Holders In Q2 2024: 56
Share Price Target Upside: -2%
Cantor’s Rating: Neutral
Cantor’s Share Price Target: $130
Expedia Group, Inc. (NASDAQ:EXPE) is a travel services provider that has been transforming its business since the coronavirus pandemic. This has seen the firm bring its hotel and rental vacation brands under a single roof, remove six dozen marketing programs from its business, cut 12% of the workforce, and consolidate seven loyalty programs under the One Key branding. Therefore, Expedia Group, Inc. (NASDAQ:EXPE)’s hypothesis depends on the success of this restructuring strategy, and if the firm keeps track and manages to streamline operations to capitalize on the resurgence in global travel and increased economic activity following interest rate cuts, then Expedia Group, Inc. (NASDAQ:EXPE) could see significant tailwinds. However, the firm’s margins remain a concern, with the trailing twelve month figure of 11.2% being 17 percentage points lower than larger rival Booking’s. Investors are wary as well, with Expedia Group, Inc. (NASDAQ:EXPE)’s forward P/E ratio of 8.47 being significantly lower than BKNG’s 18.90. This reflects disappointing results from the restructuring.
Artisan Partners mentioned Expedia Group, Inc. (NASDAQ:EXPE) in its Q2 2024 investor letter. Here is what the firm said:
“Expedia shares declined 18% during the quarter after reducing its full- year outlook. It lowered its revenue growth forecast to mid- to high- single digits for 2024 and said margins will stay flat. On the surface, a business growing in the high-single digits while maintaining profitability isn’t bad. The issue is the company just completed a major restructuring that was supposed to result in accelerated revenue growth and significant margin expansion. Neither is happening. The company continues to underperform the industry and its peers. Importantly, management will not share with us the important metrics and disclosures that might give us the ability to understand why. It continues to just tell us that improvement is coming. That is not enough for us, and we have lost confidence that the changes will have the intended impact on the company’s financial performance. As a result, we decided to exit the investment at a modest profit.”
13. Spotify Technology S.A. (NYSE:SPOT)
Number of Hedge Fund Holders In Q2 2024: 88
Share Price Target Upside: 1%
Cantor’s Rating: Neutral
Cantor’s Share Price Target: $340
Spotify Technology S.A. (NYSE:SPOT) is one of the largest audio streaming companies in the world, which benefits from its early mover advantage in the industry that has blossomed with the growth in global internet use. This has allowed the firm to grow its net and premium users by 113 million and 31 million, respectively, in 2023. This makes Spotify Technology S.A. (NYSE:SPOT) a rapidly growing company, and it underscores the fact that consumers are willing to spend on its products despite the inflationary trends that we’ve experienced over the past couple of years. Spotify Technology S.A. (NYSE:SPOT)’s stature in the market is further bolstered by the fact that it holds a 32% market share of the global music streaming market. This makes it the go to platform of choice of artists, and on the revenue front, Spotify Technology S.A. (NYSE:SPOT) has grown its revenue from 2021’s €9.6 billion to €13.2 billion in 2023. Consequently, its stable business position, also evidenced by 600 million monthly active users means that Spotify Technology S.A. (NYSE:SPOT) has to simply maintain its user base, grow its paid users, and improve margins to generate a profit.
Baron Funds mentioned Spotify Technology S.A. (NYSE:SPOT) in its Q2 2024 investor letter. Here is what the firm said:
“Spotify Technology S.A. (NYSE:SPOT) is a leading global digital music service, offering on-demand audio streaming through paid premium subscriptions and an ad-supported model. Shares of Spotify were up, largely attributable to impressive beats in gross margin and operating margin as well as the announcement of subscription price hikes. Given the strong value proposition of the product, Spotify is beginning to exercise its pricing power following last year’s initial price increases that saw minimal churn. Users continue to grow at a healthy pace despite the pricing impact. Spotify also continues to innovate on the product side, with early trials of generative AI features and the addition of new verticals like audiobooks, which have seen solid early adoption. On the cost side, Spotify is on a path to structurally increase gross margins, aided by its high-margin artist promotions marketplace, increasing contribution by its podcast division, and growth of the margin-accretive advertising business. We still view Spotify as a long term winner in music streaming with potential to reach more than one billion monthly active users.”
12. The Trade Desk, Inc. (NASDAQ:TTD)
Number of Hedge Fund Holders In Q2 2024: 46
Share Price Target Upside: 5%
Cantor’s Rating: Neutral
Cantor’s Share Price Target: $110
The Trade Desk, Inc. (NASDAQ:TTD) is an advertising technology company headquartered in Ventura, California. It is one of the few new age advertising companies in the world, which is evident through the fact that The Trade Desk, Inc. (NASDAQ:TTD) targets social media and streaming devices through its platform. This provides the firm with considerable advantages stemming from the shifting nature of the media industry that has seen users shift their focus to streaming and internet based platforms as opposed to traditional media such as cable television. The Trade Desk, Inc. (NASDAQ:TTD) also has a notable presence in the market, as it counts big ticket and notable names such as Disney+ and Hulu through its UID2 platform. UID2 is another advantage for The Trade Desk, Inc. (NASDAQ:TTD), as it allows the firm to target the programmatic advertising market. This market is expected to have a compounded annual growth rate of 22.8% in the future to add additional tailwinds for The Trade Desk, Inc. (NASDAQ:TTD).
Rowan Street Capital mentioned The Trade Desk, Inc. (NASDAQ:TTD) in its Q2 2024 investor letter. Here is what the fund said:
“We have owned TTD for a little over 4 years now, opportunistically establishing a position in March of 2020 at a cost basis of $17.40 (split-adjusted). Since then, TTD has appreciated nearly sixfold, delivering an annualized return of approximately 55%. These are indeed remarkable results, but it’s important to recognize that this journey has been far from a smooth ride—much like many of our other investments. Since its public debut in 2017, the stock has experienced several significant drawdowns, with the most notable occurring in 2022 when it declined by over 60%.
As we have previously discussed in relation to our investments in Meta and Spotify, one would have to be comfortable with sitting through these dramatic drawdowns and keeping their emotions in check in order to realize the long-term rewards of compounding that this company had delivered.
Turning attention to the fundamentals of the business rather than gyrations of stock prices, the progress is very impressive as evidenced from the numbers below. Over the 4 years, revenues, operating earnings, and earnings per share have each grown at a rate of 30%+ annually. Our return from holding the stock has been even greater than that since we were able to opportunistically purchase the stock when it briefly traded at 10x revenues during the early days of the pandemic scare. The multiple has now recovered to 20x revenues, which boosted our returns.”
11. GoDaddy Inc. (NYSE:GDDY)
Number of Hedge Fund Holders In Q2 2024: 48
Share Price Target Upside: 11%
Cantor’s Rating: Neutral
Cantor’s Share Price Target: $170
GoDaddy Inc. (NYSE:GDDY) is a pureplay internet company that focuses on developing cloud experiences and providing other services to businesses. This places it in a favorable position as it exposes the firm to a variety of high growth industries such as digital advertising, cloud development, and eCommerce. It also means that tight margins are central to GoDaddy Inc. (NYSE:GDDY)’s hypothesis. Along with margins, investors also expect the firm to produce consistent and strong bookings growth to gauge GoDaddy Inc. (NYSE:GDDY)’s market penetration. Additionally, the business focused nature of its operations and the exposure to eCommerce and domain registration introduces cyclical trends in the firm’s hypothesis as well. GoDaddy Inc. (NYSE:GDDY) benefits from stable recurring revenues due to its software business, as well as growing brand recognition as one of the top players to enable businesses and others to develop their websites. Looking at its income statement, 64% of GoDaddy Inc. (NYSE:GDDY)’s revenue is from its internet registration business, where it can continue to enjoy significant competitive advantages because of market presence and brand recognition.
Diamond Hill Capital mentioned GoDaddy Inc. (NYSE:GDDY) in its Q2 2024 investor letter. Here is what the fund said:
“GoDaddy designs and develops cloud-based web platforms primarily for small businesses. Shares rose in the quarter on the back of strong applications and commerce segment bookings, which contributed to a notable acceleration in revenue growth. Though management has been conservative in its guidance, we believe the market is increasingly recognizing the magnitude of the opportunity in front of the company, giving a boost to shares.”
10. LYFT Inc. (NASDAQ:LYFT)
Number of Hedge Fund Holders In Q2 2024: 53
Share Price Target Upside: 12%
Cantor’s Rating: Neutral
Cantor’s Share Price Target: $13
LYFT Inc. (NASDAQ:LYFT) is the second biggest ride sharing service provider in the US which provides it with a wide user base of drivers and riders. However, as chip maker Intel’s woes have taught us, market size is only part of the equation, as profitability and growth also drive investor sentiment. On both these fronts, LYFT Inc. (NASDAQ:LYFT) has left much to be desired. The firm’s stock dropped by 13% in August after it guided midpoint bookings of $4.05 billion for Q3 which were $100 million short of analyst estimates of $4.15 billion. LYFT Inc. (NASDAQ:LYFT) is yet to turn a profit either, and while the firm aims to achieve a $1 billion operating income, $25 billion in gross bookings, and $900 million in Free Cash Flow (FCF), investors remain doubtful. Cantor believes that while LYFT Inc. (NASDAQ:LYFT)’s market share and size provide it with advantages, it might be unable to improve margins.
ClearBridge Multi Cap Growth Strategy mentioned Lyft, Inc. (NASDAQ:LYFT) in its Q2 2023 investor letter:
“The sale of rideshare provider Lyft, Inc. (NASDAQ:LYFT), similar to our moves in communication services, prunes a smaller position to consolidate the portfolio in our highest conviction ideas. We initially purchased Lyft in May 2021 when rideshare volumes were still depressed due to COVID-19. While Lyft was a clear #2 behind Uber in domestic rideshare, we believed it was a cleaner way to play the U.S. recovery due to the focused nature of its business. However, poor execution and the uneven nature of the U.S. recovery, with West Coast markets where Lyft has historically had greater exposure lagging due to a lack of return to office work, further weakened its market position. In March, Lyft announced co-founder Logan Green would step down as CEO with David Risher, a former Amazon executive, taking his place. While Risher has laid out ambitions to drive Lyft’s market share higher, we believe doing so will require more than a few quarters fix. Furthermore, while the company has looked for areas to right size their cost base, we see necessary investments in price, service levels and product differentiation to drive this turnaround further pushing out the path to improved profitability.”
9. MercadoLibre, Inc. (NASDAQ:MELI)
Number of Hedge Fund Holders In Q2 2024: 84
Share Price Target Upside: 18%
Cantor’s Rating: Overweight
Cantor’s Share Price Target: $2,530
MercadoLibre, Inc. (NASDAQ:MELI) is one of the fastest growing eCommerce companies in Latin America, which makes it unsurprising that Cantor has also rated the shares as Overweight. Unlike the developed world, and particularly the US, where economic growth is slow, Latin America is one of the fastest growing regions in the world. This provides MercadoLibre, Inc. (NASDAQ:MELI) with a considerable market at its disposal, as evidenced by the Latin American eCommerce market’s 3.1x growth between 2019 to 2023. Additionally, the firm has managed to differentiate itself well in its industry through a world leading 80% delivery rate for packages within two days of orders. This is a key metric in the eCommerce industry, and it results from MercadoLibre, Inc. (NASDAQ:MELI)’s proprietary business and operational model. Not taking rest, it is also targeting tertiary revenue streams, by introducing a digital payments platform to increase its revenue and ensure that buyers do not leave the MercadoLibre, Inc. (NASDAQ:MELI) platform for any portion of their purchase journey.
Harding Loevner mentioned MercadoLibre, Inc. (NASDAQ:MELI) in its Q1 2024 investor letter. Here is what the firm said:
“MercadoLibre and FEMSA have built valuable businesses for themselves in payments, ones that also address a pressing need for many customers of their retail businesses. There is still much work to do in promoting financial inclusion in Latin America compared to many other emerging markets (see chart above). That also means there is a continuing opportunity for MercadoLibre, FEMSA, and other companies to lower financial barriers for customers while at the same time differentiating themselves from their competitors and boosting their own businesses.”
8. Alphabet Inc. (NASDAQ:GOOG)
Number of Hedge Fund Holders In Q2 2024: 165
Share Price Target Upside: 22%
Cantor’s Rating: Neutral
Cantor’s Share Price Target: $190
Alphabet Inc. (NASDAQ:GOOG) is one of the leading technology companies in the world, and it owes its success to the Google Search search engine. This has allowed it to have a fortress balance sheet, as evidenced by $111 billion of cash and equivalents, through Alphabet Inc. (NASDAQ:GOOG)’s dominance in the advertising market through which it serves as an intermediary between publishers and advertisers and also offers ad spots on its search engine. Alphabet Inc. (NASDAQ:GOOG)’s resources and tech focused nature have also made it into a key AI player and one of the few companies with a foundational AI model in the form of Gemini. Gemini allows Alphabet Inc. (NASDAQ:GOOG) to build AI products and services, and it also enables the company to offer AI products to others. Additionally, Alphabet Inc. (NASDAQ:GOOG)’s tensor processing units (TPUs) are among the leading AI chips in the industry; so much so that they’ve enticed Apple to use them for Apple Intelligence. However, headwinds in the form of regulatory action against Search persist and could knock the wind out of the firm in the not so distant future.
Patient Capital Management mentioned Alphabet Inc. (NASDAQ:GOOG) in its Q2 2024 investor letter. Here is what the fund said:
“Alphabet Inc. (GOOGL) was a top contributor in the second quarter, finally catching up to its peers in the Magnificent 7. The company gained 20.8% in the period following strong first quarter earnings, a new $70B repurchase program (3% of shares outstanding) and the initiation of a cash dividend ($0.20 per share; 0.42% yield). We continue to believe the market underappreciates Google’s exposure to AI with its Gemini model being integrated into search results, YouTube advertising and its cloud offering. We continue to think that the cloud players will be the AI winners in the long-term, with Google being well positioned to take advantage. While the company trades at 24x 2024 earnings, if you remove the money-losing and under-earning businesses, you realize that you are paying below a market multiple for the core Google business. We do not believe there are many other AI winners trading at such an attractive multiple.”
7. Amazon.com, Inc. (NASDAQ:AMZN)
Number of Hedge Fund Holders In Q2 2024: 308
Share Price Target Upside: 23%
Cantor’s Rating: Overweight
Cantor’s Share Price Target: $230
Amazon.com, Inc. (NASDAQ:AMZN) is the global leader in eCommerce and a sizeable player in the cloud computing industry. Cantor has rated the stock as Overweight, based on optimism surrounding the two key businesses. For eCommerce, the firm believes that Amazon.com, Inc. (NASDAQ:AMZN) can expand its margins in the future via growing revenue, while for cloud computing, it thinks that AWS has further room for growth. Like Alphabet, Amazon.com, Inc. (NASDAQ:AMZN) is among the handful of companies with its own foundational AI model in the form of Claude. It allows the firm to take an end to end approach to AI, by operating in all layers of the AI stack. This includes Amazon.com, Inc. (NASDAQ:AMZN)’s in house processors for AI computing, its foundational model Claude, and the final application layer that not only allows it to improve its eCommerce marketing offerings but also enables it to compete in the high end cloud computing market with Microsoft and ChatGPT. Unlike Microsoft though, Amazon.com, Inc. (NASDAQ:AMZN)’s valuation is helped by its stable eCommerce model and removes some of the volatility associated with AI profitability from the shares.
Patient Capital Management mentioned Amazon.com, Inc. (NASDAQ:AMZN) in its Q2 2024 investor letter. Here is what the fund said:
“Amazon.com Inc. (AMZN) moved higher throughout the second quarter as AI demand helped to reaccelerate growth in their AWS business. It looks as though the cloud business is finally past the customer cost optimization period with customers restarting their cloud migrations as well as expanding spend on AI projects. Despite the top and bottom-line improvement seen in the first quarter, the company is significantly underearning its long-term potential as it continues to reinvest aggressively in the business. With 80% of global retail sales still being done in physical stores and 85% of global IT spending still on-premises, we see a long-run way for the dominant player in the cloud, retail, and increasingly logistics and advertising space.”
6. DoorDash, Inc. (NASDAQ:DASH)
Number of Hedge Fund Holders In Q2 2024: 67
Share Price Target Upside: 23%
Cantor’s Rating: Overweight
Cantor’s Share Price Target: $160
DoorDash, Inc. (NASDAQ:DASH) is a food delivery company that has leveraged the internet to exploit the need of working individuals to easily access meals. This specialty business model provides the firm with a wide moat, and it also removes some of the cyclical trends from its shares. Data from Bloomberg shows that DoorDash, Inc. (NASDAQ:DASH) commands a whopping 67% of the food delivery market, which reduces some of the pressure that managements typically face for growth. It also means that margins, customer retention, and customer profitability are the three key drivers of DoorDash, Inc. (NASDAQ:DASH)’s hypothesis. The importance of cost control to its hypothesis was evident after DoorDash, Inc. (NASDAQ:DASH)’s Q1 earnings saw it guide Q2 operating income at a midpoint of $375 million which missed analyst estimates of $394 million. Cantor believes that the firm’s operating margins as a percentage of its gross order value can exceed 6% in fiscal year 2025. It also believes that customer loyalty can help DoorDash, Inc. (NASDAQ:DASH) navigate through demand slowdown in economic downturns.
On the topic of softening demand, here’s what DoorDash, Inc. (NASDAQ:DASH)’s management shared during the Q2 2024 earnings call:
“We’re seeing really strong demand on the consumer side. So, we’re not actually seeing some of the challenges that you may be hearing about or reading about in other headlines. I think there are a few reasons for this. I think, first, we’re still in the early innings of the move towards digital and the overall omnichannel experiences that every restaurant and retailer is participating in and we’re lucky to play in the part that is growing. I mean, if you look at digital only, that’s growing not just for us at DoorDash on our marketplace, it’s also growing for us in our first-party platform as we power a lot of these restaurant and retailer websites for ordering, as well as their delivery channels.
And they see that too, by the way. While some restaurants, to your point, may be seeing some headwinds in traffic, I mean, their digital channels are growing very robustly, many multiples of, I think, their overall growth and we see that similarly. But at the same time, we’re still just single-digit penetration in restaurants and outside of restaurants. We’re even lower than that. So, we see a long runway for growth there. The second point I make is that our product continues to get better. I mean, if you looked at our cohort behavior, whether it’s retention or order frequency, I mean, all of these things are as good or better than even our pandemic cohorts for every cohort since the pandemic. And so, I think that’s a reflection and testament to the work that the team is doing.”
5. Maplebear Inc. (NASDAQ:CART)
Number of Hedge Fund Holders In Q2 2024: 56
Share Price Target Upside: 24%
Cantor’s Rating: Overweight
Cantor’s Share Price Target: $45
Maplebear Inc. (NASDAQ:CART) is a specialty delivery company that enables people to order groceries online. The firm had 14 million active users in 2023, and as of 2023 start, it commanded a whopping 73% of the US digital grocery sales. Its market share allows Maplebear Inc. (NASDAQ:CART) to establish a foothold in a market that big ticket names such as Walmart and Kroger are also eager to target. The grocery delivery business also protects the firm against the typical cyclical downtrends that other consumer facing eCommerce companies face during an economic downturn. A key aspect of Maplebear Inc. (NASDAQ:CART)’s business model is its ability to add retailers to its platform. This is important since it enables the company to expand its delivery network to improve customer satisfaction. Cantor believes that Maplebear Inc. (NASDAQ:CART) is experiencing double digit gross transaction volume (GTV) growth.
During its Q2 2024 earnings call, Maplebear Inc. (NASDAQ:CART)’s shared some details for how it’s expanding its retailer network:
“The beauty of all of our In-Store technologies is that they connect directly with Storefronts and with each other, so it’s really a seamless experience for customers to buy from retailers online and In-Store. For example, customers can reorder online what they bought with their Caper Carts in one tap, or bring their online shopping list to the screen of Caper Carts to avoid forgetting ingredients in the store.
This is increasingly important to retailers who are moving away from complex and fragmented point solutions and towards technology partners that can offer a simple and seamless customer experience across all of their channels. Scaling our marketplace and enterprise offerings both online and In-Store is also critical to our strategy because it’s laying the foundation for a massive one-stop-shop, omni-channel retail media network. While it may seem like new retail media networks are popping up left and right, right now, we know that brands have limited time and resources, and they will ultimately want to work with platforms that have scales across all channels. And this is exactly where Instacart ads will shine because of our leading scale, performance, measurement, data, and product capabilities.”
4. Meta Platforms, Inc. (NASDAQ:META)
Number of Hedge Fund Holders In Q2 2024: 219
Share Price Target Upside: 26%
Cantor’s Rating: Overweight
Cantor’s Share Price Target: $660
Meta Platforms, Inc. (NASDAQ:META) is the dominant player in the global social media industry and owns Facebook, Instagram, and WhatsApp. As per Cantor, it is one of the strongest players in the artificial intelligence industry and can capture market share. Meta Platforms, Inc. (NASDAQ:META)’s AI products and services are built on its Llama foundational model – which is also among the few truly open source AI models in the world. Meta Platforms, Inc. (NASDAQ:META) is using Llama to add value for advertisers on its bread and butter platform Facebook, and it is also aiming to target social media users through products such as AI Studio to allow them to create their own AI variants. Cantor believes that Meta Platforms, Inc. (NASDAQ:META) can create AI growth over the next two to three years, and adds that the firm’s fiscal 2025 P/E ratio of 20 implies that investors have factored in the risk of Meta Platforms, Inc. (NASDAQ:META) failing to adequately monetize AI and ad revenue growth slowing down.
Evercore analyst Mark Mahaney shared how Meta Platforms, Inc. (NASDAQ:META) is monetizing AI during a recent talk with CNBC:
“If you look at what happened with Meta Platforms Inc (NASDAQ:META). they went to almost 30% revenue growth, they are growing dollar-wise faster than anybody else that’s because they used AI to rebuild their ad-tech stack because they used AI to rebuild their user interface and get us more engaged, so it actually worked for them.”
3. Wix.com Ltd. (NASDAQ:WIX)
Number of Hedge Fund Holders In Q2 2024: 42
Share Price Target Upside: 30%
Cantor’s Rating: Overweight
Cantor’s Share Price Target: $200
Wix.com Ltd. (NASDAQ:WIX) is a pure play internet company that directly works with businesses to allow them to leverage the internet for their various needs. It is a software as a service (SaaS) firm, due to its web development, application management, payment platform, and other services. This means that Wix.com Ltd. (NASDAQ:WIX) has to focus on growth and margins to drive its valuations. The firm’s growth is indicated by its bookings, and Wix.com Ltd. (NASDAQ:WIX) is also targeting the growing number of businesses that plan to come online through the internet. This product is the Wix Studio, which provides businesses with a one stop shop to set up their websites. Data shows that 71% of businesses had a website in 2023, with 28% of all business activity being conducted online to provide Wix.com Ltd. (NASDAQ:WIX) with significant tailwinds. Cantor’s valuation is based on a 6% FCF yield for Wix, and the firm is impressed by the firm’s product improvements and its Partner business.
Wix.com Ltd. (NASDAQ:WIX)’s management commented on Wix Studio’s adoption during the Q2 2024 earnings call:
“The number of Studio accounts and rate of new partners joining the Wix platform through Studio continue to outperform expectations. We also saw an acceleration in the pace of Studio subscription purchases. This, along with strong retention of existing subscriptions and the ramping of partners purchasing their second, third, and fourth Studio packages, drove quarter-over-quarter Studio bookings growth of 20%. Our platform is increasingly resonating with the professional community, as we continue to deliver best-in-class innovations and grow our partner ecosystem. Second, we continue to build up our suite of AI capabilities as a result of the numerous AI initiatives and work streams across weeks. Last quarter, we introduced our plan to embed AI assistance across our platform and products.”
2. Uber Technologies, Inc. (NYSE:UBER)
Number of Hedge Fund Holders In Q2 2024: 145
Share Price Target Upside: 32%
Cantor’s Rating: Overweight
Cantor’s Share Price Target: $90
Uber Technologies, Inc. (NYSE:UBER) is one of the biggest ride sharing companies in the world. Its sizeable market share in the ride sharing market has allowed the firm to expand into tertiary markets such as food delivery where it is the second biggest player in terms of market share after DoorDash. Additionally, Uber Technologies, Inc. (NYSE:UBER), unlike Lyft, is also targeting two key high growth and technology driven initiatives that could bode well in the future. It has teamed up with Joby Aviation through a $125 million investment. Joby develops electric vertical take off and landing (eVTOL) aircraft, and Uber Technologies, Inc. (NYSE:UBER) has also teamed up with General Motors to use the latter’s autonomous cars to create a Robotaxi service. The latter deal could significantly improve Uber Technologies, Inc. (NYSE:UBER)’s margins, but it also comes with the risk of GM being an unreliable partner and choosing to part ways in the future. Cantor is wary of regulatory and technology risks for autonomous vehicles with respect to Uber Technologies, Inc. (NYSE:UBER), but it believes that the firm’s current market position can help it weather any such potential storms.
RiverPark Advisors mentioned Uber Technologies, Inc. (NYSE:UBER) in its Q1 2024 investor letter. Here is what the fund said:
“UBER remains the undisputed global leader in ride sharing, with a greater than 50% share in every major region in which it operates. The company is also a leader in food delivery, where it is number one or two in the more than 25 countries in which it operates. Moreover, after a history of losses, the company is now profitable, delivering expanding margins and substantial free cash flow. We view UBER as more than a ride sharing and food delivery service; we also see it as a global mobility platform with 142 million users (by comparison, Amazon Prime has 200 million members) and the ability to penetrate new markets of on-demand services, such as package and grocery delivery, travel, and hourly worker staffing. Given its $5.4 billion of unrestricted cash and $4.8 billion of investments, the company today has an enterprise value of $165 billion, indicating that UBER trades at 21x our estimates of next year’s free cash flow.”
1. Pinterest, Inc. (NYSE:PINS)
Number of Hedge Fund Holders In Q2 2024: 61
Share Price Target Upside: 40%
Cantor’s Rating: Overweight
Cantor’s Share Price Target: $41
Pinterest, Inc. (NYSE:PINS) is one of the most unique websites in the world. It allows creatives and anyone else to search a large repository of images in its database to generate ideas for recipes, decor, fashion, and other users. Given the growth in internet use and speed, this creates a wide moat for Pinterest, Inc. (NYSE:PINS) within its specialty niche. Additionally, its image database nature also means that the firm can leverage its service for artificial intelligence image generation services. Key to Pinterest, Inc. (NYSE:PINS)’s hypothesis is its 460 million global active monthly users that provide it with a wide moat in its industry. Additionally, the firm’s success also depends on its ability to monetize its user base by allowing businesses to target them with advertisements. On this front, Pinterest, Inc. (NYSE:PINS) teamed up with eCommerce giant Amazon in 2023 to allow Amazon merchants to share their links on Pinterest. Cantor’s bullishness for the stock is based on the financial firm’s belief that Pinterest, Inc. (NYSE:PINS) can secure a stronger foothold in the digital advertising market.
Pinterest, Inc. (NYSE:PINS)’s management provided key details for its advertising performance during the Q2 2024 earnings call:
“Pinterest is a place where advertisers can build their brand in a positive environment, drive consideration when the consumer is not yet decided, and ultimately deliver conversions all on one platform. We see that over 90% of search queries don’t specify a brand or specific product, but rather a categorical interest, such as Fun Summer Dresses or Cool White Sneakers or Mid-Century Bedroom Decor.
This is a magic moment for advertisers to connect with users who have clear commercial intent, but have not yet decided what they want to buy. Many of our advertisers are taking advantage of the full funnel, with over half of our large advertisers using multiple campaign objectives. Moreover, advertisers who use upper and lower funnel objectives see two times higher conversion rates than those who use one objective alone. Within the full funnel, we focus the majority of our monetization efforts on the lower funnel to drive performance in the form of clicks and conversions to advertisers. We’ve made substantial progress across our entire platform to improve actionability and allow users to shop at the point of inspiration. Nowhere does this manifest more than within the lower funnel, where relevant shoppable ads can be great content on Pinterest.”
PINS is Cantor Fitzgerald’s top internet stock pick. But our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than PINS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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