As the second-quarter earnings season gains momentum, Mark Mahaney from Evercore ISI has made some strategic updates to his list of tactical calls. Mahaney, the head of internet research at the firm, has expressed a positive outlook on the large-cap internet sector for the remainder of the year. Despite the significant 34% rally in the broader technology sector in 2024, Mahaney believes that valuations have now reached a sustainable level. He highlights the consistent or improving demand trends in most Internet verticals, as well as ongoing margin expansion driven by a focus on sustainable profitability and shareholder-friendly capital allocation strategies.
Mahaney has made changes to his list of top large-cap long recommendations, with Alphabet and Uber Technologies moving to the top of the list. Additionally, Shopify has been added to the list, while Amazon and Expedia Group have been removed. According to Mahaney, Alphabet is expected to achieve a “modest” beat in the second quarter and represents one of the lowest-risk options in the current earnings cycle. He emphasizes the underappreciated impact of generative artificial intelligence integrations in Google Search and the strength of YouTube as a streaming platform as key drivers for the stock.
Uber has been elevated to the second-favorite large-cap long pick by Evercore ISI, with Mahaney dismissing concerns about the impact of autonomous vehicle (AV) rollouts on the company. Mahaney posits that transportation networks and rideshare services are likely to benefit from the AV rollout, with Uber positioned as a demand aggregator for mobility. He also highlights Uber’s attractive valuation, trading at around 20 times enterprise value to free cash flow.
Shopify makes its debut on Mahaney’s top picks list, with the analyst assigning a $75 price target for the stock, indicating potential upside of nearly 17%. Mahaney and his team have upgraded Shopify to outperform, citing the company as a best-in-class ecommerce platform business. He underscores the resilient long thesis for Shopify shares, driven by its substantial total addressable market, competitive position, enterprise market opportunity, track record of product innovation, and potential profitability growth.
In a surprising move, Mahaney has included Amazon on his tactical underperform list, despite his positive long-term outlook for the e-commerce giant. While Mahaney acknowledges his preference for Amazon as a long call, he expresses skepticism about the company’s ability to meet Wall Street’s expectations for operating income in the third quarter. He anticipates a slight beat in the second quarter but raises concerns about the company’s ability to align with guidance without substantial operating income upside.
Overall, Mahaney’s updated tactical calls reflect a nuanced approach to assessing the large-cap internet sector, emphasizing sustainable profitability, positive demand trends, margin expansion, and shareholder-friendly capital allocation. By strategically positioning Alphabet, Uber Technologies, and Shopify as top picks while exercising caution with Amazon, Mahaney seeks to navigate the complex landscape of internet investments in the current market environment.