Evercore ISI analysts revealed in a note last week that the firm sees several good reasons to remain tactically constructive on the internet sector in the wake of the second-quarter EPS season.
However, the firm's emphasis is "increasingly on the Tactical part of that label," and as a result, it has decided to shuffle some of its SMiD cap top picks.
Pinterest (NYSE:PINS) has become the firm's new number-one pick. The firm sees PINS benefitting from "clear evidence of Digital ad spending at least stabilizing," while they also believe there is increasing evidence that the operational improvements new CEO Bill Ready has implemented over the past year on both the consumer and advertiser side are bearing fruit.
"The Q2 user and engagement metrics pretty clearly support the user benefits, tho the Q2 revenue results don't really support the advertiser benefits," wrote the analysts. They also noted that the Amazon (NASDAQ:AMZN) partnership appears to be progressing faster than expected, which Evercore IS believes can bring "materially incremental advertiser demand to the Pinterest platform."
Wix.com (NASDAQ:WIX) has moved from the top spot to number two after the company "faced unusually severe headwinds in ’22 due to Macro, FX, Partner build-outs, and material Ukraine exposure." The analysts said the setup is "here for (very modest) revenue growth acceleration in ’23," following the recently announced cost reduction and efficiency plans, which Evercore thinks will likely help drive EBITDA margin recovery.
"With the very recent launch of its AI Site Generator and Wix Studio, we see Wix looking to re-shape the narrative on it as a Gen AI positive derivative," wrote the analysts, who added that the company’s updated financial framework and new initiatives will enhance shareholder value. They also highlighted "an intrinsically attractive risk-reward setup."
Finally, Magnite Inc (NASDAQ:MGNI) comes in at number three as Evercore ISI believes its current setup is "very attractive," with accelerating revenue growth in 2023 and 2024. They also noted the company's margin expansion – driven by macro turnaround, new product pipeline, secular tailwinds, and cost efficiency gains.
The firm believes MGNI’s recent ~40% selloff may be overdone, with the analysts stating in the note that they do not believe the company faces any major structural issue related to take rate compression. Lastly, current estimates look largely de-risked and "risk/reward looks attractive on ‘25E – 2.5X EV/Sales and 7X EV/EBITDA," the analysts wrote.