KeyBanc loves these non-FANG tech stocks.
The tech sector has led the stock market rally since the financial crisis back in 2008, and many tech stocks have surged since the 2020 March lows. The so-called FANG stocks — Facebook (ticker: FB), Amazon (AMZN), Netflix (NFLX) and Alphabet (GOOG, GOOGL) — have accounted for much of that long-term growth but have now become so large that investors are concerned about their ability to maintain their growth rates. After years of FANG outperformance, it may be time for some non-FANG stocks to shine, KeyBanc says. Here are seven tech plays the KeyBanc analyst team loves that aren’t FANG stocks.
Angi Homeservices (ANGI)
Angi Homeservices is the owner of Angie’s List, a digital marketplace for home services. Analyst Justin Patterson says Angi should benefit from an uptick in homeownership, home investment and home improvement in 2020 and beyond. In addition, he says growing digital service usage and improving execution by the management team are tailwinds for the stock. Patterson anticipates that Angi will return to revenue growth in the mid-to-high-teens percentage range and expand its margins in the current conditions. KeyBanc estimates that the home services market is worth $400 billion. KeyBanc has an “overweight” rating and $15 price target for ANGI stock.
IAC/InterActive Corp. (IAC)
IAC/InterActive Corp. is the majority owner of Angi Homeservices and the parent company of Vimeo, Dotdash, The Daily Beast and other online businesses. Patterson says strong growth trends at both Angi and Vimeo could allow IAC to monetize those assets via spinoffs sooner than anticipated. Vimeo’s revenue was up more than 40% in the first half of 2020. IAC shares rallied following its successful spinoff of Match Group (MTCH) earlier this year. In addition, he says investors don’t seem to be fully appreciating Dotdash’s market share opportunity. KeyBanc has an “overweight” rating and $160 price target for IAC stock.
Match Group (MTCH)
Match is the leading owner of online dating platforms, including Match.com, OKCupid and Tinder. Patterson says 2020 is a clear demonstration of the online dating model’s resiliency. After years of building brand value and growing its user base, Match has a significant opportunity to monetize its customers, particularly its Tinder and international users. He says Match has a sustainable growth opportunity and best-in-class margins. Patterson says dating will follow retail shopping, travel and ride-hailing services in shifting almost entirely online over time. KeyBanc has an “overweight” rating and $138 price target for MTCH stock.
Pinterest is a social media platform with more than 300 million active users. Patterson is projecting greater than 30% annual revenue growth for Pinterest thanks to an acceleration in digital spending, investment in advertising initiatives and potential market share gains. He is predicting long-term margin expansion and says the 2020 holiday shopping season could be Pinterest’s next bullish catalyst. Patterson says Pinterest is exposed to all the major growth trends in digital advertising while avoiding the negative headlines competitors have battled about content policing and anti-competitive practices. KeyBanc has an “overweight” rating and $44 target for PINS stock.
Roku is a leader in over-the-top video streaming, offering both streaming video players and the Roku TV operating system for smart TVs. Patterson says Roku’s large user base is undermonetized, and the company will likely exceed Wall Street ad revenue growth forecasts in coming years because of new ad units and ad-supported channels. Improvements in targeting and pricing will also help boost margins, Patterson says. The pandemic may have even accelerated the cord-cutting trend, and Roku’s relatively young user base is highly coveted by advertisers. KeyBanc has an “overweight” rating and $228 price target for ROKU stock.
Snap’s Snapchat social media platform has more than 238 million daily active users. Patterson says Snap’s heavy investments in improving its platform and advertising business have positioned the company to exceed analysts’ expectations for average revenue per user growth in coming quarters. In addition, Patterson says Snap’s margins will expand as its revenue grows. KeyBanc projects daily active user growth of 16.1% in 2020, 7.9% in 2021, and 5.9% in 2022, and says Snapchat is still in the “early innings of growth.” KeyBanc has an “overweight” rating and $29 price target for SNAP stock.
The Trade Desk (TTD)
The Trade Desk is a tech platform for advertising buyers. Patterson says the stock is highly exposed to secular growth trends in online advertising, particularly high-growth video and audio advertising. These growth trends, coupled with market share gains, should produce at least 30% annual revenue growth and 30% earnings before interest, taxes, depreciation and amortization margin for the company, according to KeyBanc. Programmatic spending adoption is a near-term catalyst for The Trade Desk, and Patterson says companies are once again focusing on increasing advertising budgets heading into 2021. KeyBanc has an “overweight” rating and $580 price target for TTD stock.
Non-FANG tech stocks to buy:
— Angi Homeservices (ANGI)
— IAC/InterActive Corp. (IAC)
— Match Group (MTCH)
— Pinterest (PINS)
— Roku (ROKU)
— Snap (SNAP)
— The Trade Desk (TTD)