Morgan Stanley lowered its industry view on internet stocks to “in-line” from “attractive”, saying growth in the sector needs to accelerate to justify current valuations.
Shares of Facebook and LinkedIn have more than doubled in the last year and trade at 44 times and 97 times forward earnings, respectively, according to Thomson Reuters data. Google’s shares have risen 56 per cent in the same period and trade at almost 20 times earnings.
Morgan Stanley analysts said the rise in the valuation of internet stocks has been due to investors looking at the total addressable market (TAM) opportunity, with minimal focus on risks.
“There may not be enough TAM for all of our companies to achieve long-term estimates,” the analysts wrote in a client note on Monday.
Morgan Stanley removed Google from its best idea list, saying catalysts have played out.
The brokerage, however, maintained its “overweight” rating on Google and other internet stocks including eBay, Amazon.com, LinkedIn and Facebook.
“While we still believe that our Overweight-rated stocks hold upside, we find overall valuation for the entire group to be unflattering,” the bank said.