Internet stocks underperformed the broader market yet again this week (-1.9%), but maintain a lead over the S&P 500 on a YTD basis (+15.8% vs. +8.7%, respectively). Internet and digital media news from the week includes GOOGL introducing AdSense Native ads for mobile, Instagram announcing photo/video replies to Stories, the latest original content news, and Amazon Alexa surpassing 15k skills. The firm’s top picks remain Overweight-rated FB and GOOGL among larger caps, and YELP and ACXM among smaller caps.
The Cantor Internet Index (a broad index of 80+ Internet and digital media stocks) underperformed the broader market for the week ended 7/5, down 1.9% vs. the S&P 500 down 0.3%, resulting in a YTD performance of +15.8% vs. +8.7% for the S&P 500. Top movers from the firm’s coverage include DHX (-7.0%), RUBI (-6.2%), TTD (-5.1%), NFLX (-3.8%), and GOOGL (-3.0%). The CII is trading at 18.1x EV/NTM EBITDA, in the upper half of the 10-year range of 6-24x.
Alphabet’s Google introduces AdSense Native ads, providing publishers with a suite of ad formats designed to match the look and feel of their mobile sites (Google’s AdSense blog and MarketingLand). These native ad formats include in-feed (slotting between content/stories), inarticle (between paragraphs) and matched content (contextually relevant at bottom of articles), which can all be used together or individually. The ad units are meant to fit naturally with existing content on the site; are built to fit mobile, desktop and tablet experiences; and they also include easy-to-use editing tools. Cantor Fitzgerald views this news as incrementally positive for Google’s network ad revenue, which increased 9% Y/Y in 1Q17 and hasn’t grown in double digits (consistently) since 2012.
According to an Instagram blog post, users can now reply to stories with a photo or video and can use all creative tools in the camera, including face filters, stickers, and Rewind in their response. Replies can also include a sticker of the story that users can move around or resize. Replies are sent to users’ inboxes, and as with disappearing photos and videos in Direct, users will know when their reply was screenshotted or replayed. This new feature demonstrates that Facebook/Instagram will continue to innovate (not just copy), and the firm views this functionality as incrementally positive for Instagram engagement.
LaVar Ball and his three basketballplaying sons, LA Lakers rookie Lonzo Ball, UCLA freshman LiAngelo Ball, and UCLA commit LaMelo Ball, have agreed to star in a Facebook-produced reality show, according to Deadline.com and ESPN. The Ball family show will be one of two shows from which more original video projects are planned. FB’s growth in recent years has been propelled by highly successful News Feed ads amid the secular shift to mobile, but the firm believes the next stage of growth will be from the rise of ad-supported digital video, including original content.
FB, TWTR, and SNAP are seeking online rights to 2018 World Cup Highlights, according to Bloomberg. The digital players are reportedly offering 21st Century Fox tens-of-millions of dollars for the rights to highlights from the Russia-hosted games that air in the U.S. Interestingly, Fox is still deciding on whether to sell exclusive rights to one party or to spread them around. All three digital players are in the process of building out content in a bid to increase users and engagement on their respective platforms.
Snap added links, backdrops, and voice filters to its app this week, according to TechCrunch. Paperclip allows users to attach website links to a story, a feature previously available only for ad campaigns and Discover content; backdrops allow users to insert a layer of imagery between objects and the real background, enabling users to augment their surroundings (in addition to their faces); and voice filters let users remix the sound of their voices. Although Snap continues to bring innovative features and differentiation to the platform, it remains to be seen if these moves will ultimately boost user/engagement growth.
Amazon’s Alexa passes 15,000 skills, up from 10,000 skills in February and 5,000 in September 2016, according to TechCrunch. This compares with Google Home’s 378 voice apps and Microsoft Cortana’s 65. Amazon continues to dominate the voice platform space and is expected to control ~70% of the market this year (TechCrunch/eMarketer). Also noteworthy, AMZN continues to promote Alexa’s voice-shopping capabilities by offering over 100 Prime Day Deals exclusively for customers who shop from an Echo, Echo Dot, Echo Show, Amazon Tap, Fire TV, or Fire tablet, two hours before the normal 7/10, 6pm PT start time.
Earlier this week, Amazon completed its acquisition of Souq.com, a Middle Eastern e-commerce platform, for $580M cash. The companies have reportedly finished an initial integration, allowing customers to log into Souq.com using Amazon credentials, and they intend to further integrate products and services to leverage their respective scale. According to TechCrunch, Souq.com claims over 45M visitors per month and offers ~8.4M products across 31 categories, against a backdrop of ~50M consumers in the Middle Eastern market.