Internet-related stocks have been tough this year, with the Nasdaq CTA Internet Index falling 41%.
Bank of America compiled a list of 69 potential catalysts for the sector in the second half of the year and judged which stocks could benefit and which could suffer.
“The internet group has consumer downside risk … making macro data the main catalyst for the sector,” BofA analysts wrote in a commentary.
“If bearish sentiment continues to drive equity performance in the second half, we believe Alphabet (GOOGL) – Get the Alphabet Inc. report., Facebook [Meta Platforms] (META) – Get the report from Meta Platforms Inc. and Match (MTCH) – Get the Match Group Inc. report as the most defensive/recession resistant.
Additionally, “while further reductions in revenue estimates for advertising actions are likely in a possible recessionary scenario, Meta and Alphabet have outsized spending flexibility,” the analysts said.
This is due to “heavy long-term capital expenditures, healthy margins, ample cash reserves to take advantage of stock dislocations with buybacks and potential price and earnings valuation support versus to peers”.
Here are some of the catalysts listed by BofA analysts and the companies they see affected.
Travel Catalyst
Catalyst: “From June 20, [Booking Holdings’] (BKNG) – Get the report from Booking Holdings Inc. Priceline has offered discount coupons and thousands of hotels will be on sale for 15% or more. The sale could facilitate reservations and possibly have a slight negative impact on take rates.
Potential beneficiary: Reserve credits
Potentially at risk: Expedia (EXPE) – Get the report from Expedia Group Inc.
Prime Day Catalyst
Catalyst: from Amazon (AMZN) – Get the report from Amazon.com Inc. Prime Day(s), July 12-13. Prime Day could add more than $5 billion in third-quarter sales for the company, BofA said.
Scroll to continue
Potential beneficiary: Amazon
Potentially at risk: eBay (EBAY) – Get the report from eBay Inc. and the retail sector
Spend catalyst
Catalyst: Commentary on streamlining spending on earnings calls. “With weak e-commerce spending, rate hikes and retail inventory building, we expect earnings call commentary to reflect slowing capital spending,” the analysts said. This “could offset some revenue pressure,” they said. “Alphabet and Meta have the most capital expenditure flexibility in the industry, while companies with low gross margins have the most margin risk.
Potential beneficiaries: Alphabet, Metaplatforms
Potentially at risk: companies with low gross margins
Federal Reserve Catalyst
Catalyst: Federal Reserve interest rate hike. “Higher rates are a potential headwind for the [fintech real estate] sub-sector given declining affordability and buyer demand, and rising costs of ownership,” the BofA analyst said.
Potential beneficiaries: None
Potentially at risk: red fin (RDFN) – Get the Redfin Corporation report, Zillow (Z) – Get the report from Zillow Group Inc., Open door technologies (OPEN) – Get the Opendoor Technologies Inc report
Lord of the Rings Catalyst
Catalyst: The Lord of the Rings: The Rings of Prime Power. “from Amazon The Lord of the Rings TV series will launch on Prime Video in September,” the analysts said. “The production would have cost nearly $500 million, and the series could be the most expensive television production in history.”
Potential beneficiary: Amazon
Potentially at risk: netflix (NFLX) – Get the report from Netflix Inc.