1、 DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES,ANALYST CERTIFICATIONS,LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS.US Disclosure:Credit Suisse does and seeks to do business with companies covered in its research reports.As a result,investors should be awa
2、re that the Firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their investment decision.28 January 2019 Americas/United States Equity Research Consumer Internet Internet Research Analysts Step
3、hen Ju 212 325 8662 stephen.jucredit- Yoni Yadgaran 212 325 6206 yoni.yadgarancredit- Philip Wang,Ph.D.212 538 3458 philip.wangcredit- Nicole DSouza 212 325 6659 nicole.dsouzacredit- PRE RESULTS COMMENT Internet Outlook 2019:Growth Reignited but First Investments Event:We preview 2019 for the Intern
4、et sector,the upcoming 4Q18 earnings results,and update our projections and price targets for our universe of companies(summary of changes on page 7).Improving ROI as stronger signs of benefits from AI emerge:Our conversations with advertisers suggest Googles Responsive Search Ads as well as greater
5、 adoption of Smart Bidding both of which take advantage of AI-are driving higher ROIs.This in turn should incentivize advertisers to accelerate the deployment of ad budgets online.Expecting the rest of the sector to join the megacaps in entering a period of investment in 2019:Some of this had alread
6、y been signaled on the 3Q18 earnings results(IAC,Grubhub,Wayfair),but as we look across the sector,we anticipate all three of Booking,Expedia,and TripAdvisor to announce new or update existing initiatives to reignite growth.We also expect Grubhub and Wayfair to offer below-consensus profit guidance
7、given already-announced delivery and International expansion opportunities respectively.We favor the megacaps in the near term:In particular we favor Google as we anticipate what should be better-than-expected advertising revenue and Websites growth for 2019 and beyond as new products gain traction
8、and further as it remains the primary destination for traffic acquisition as merchants/operators look to increase investments.We also anticipate 2019 will be a harvest year for Google as it shows FCF growth acceleration(starting in 1Q19)following a step-up in capex/investments in 2018.And take advan
9、tage of pullbacks following what should be conservative initial guidance for 2019:To initiate or increase positions on BKNG,EXPE,GRUB,and W.Please see our companion piece for Online Travel(Online Travel Outlook 2019:Going on the Offensive and Following Divergent Growth Paths for further details).We
10、have also upgraded GRUB and W shares to Outperform.We maintain our ranking for the Top Picks:Our positioning,which weighs longer-duration strategic factors as well as open-ended growth opportunities,remains unchanged with Google,Amazon and Facebook,in that order.As we go smaller in market cap we pre
11、fer MercadoLibre.每日免费获取报告1、每日微信群内分享7+最新重磅报告；2、每日分享当日华尔街日报、金融时报；3、每周分享经济学人4、行研报告均为公开版，权利归原作者所有，起点财经仅分发做内部学习。扫一扫二维码关注公号回复：研究报告加入“起点财经”微信群。28 January 2019 Internet 2 Internet Outlook 2019:Growth Reignited but First Investments The thought process for our thematic outlook for this year was first kick-st
12、arted with signals from some of the SMID cap operators of an intent to step up investments in either advertising or fulfillment costs.In our view there are essentially three reasons why any advertiser/merchant/operator will elect to step up advertising(or investment)spend:1)match an increase from a
13、competitor to maintain share,or 2)response to an ROI-improving product release from any or all of the main advertising platforms,or 3)a new business opportunity.While the first reason is perhaps long-term unsustainable and hence inherently less attractive,the second and third could be transformative
14、.To this end,we have been holding ongoing and more frequent conversations with advertisers,merchants,and operating companies coming out of the 3Q18 earnings results to see which(or even all)of the three reasons we cite above could be the driver(s).And the most meaningful takeaways in our view are th
15、e following:Improving ROI due to gradual adoption of Googles AI-assisted tools advertisers cited Smart Bidding as well as Responsive Search Ads most often as being particularly important.While Smart Bidding is not necessarily a new product,advertiser pickup of this product remains ongoing as they lo
16、ok to integrate with existing bidding tools.Landing page and subsequent conversion rate improvement this dynamic is also not new as driving conversion rates has always been the ultimate goal,but this was often cited for those advertisers who are stepping up their investments in Facebook and Instagra
17、m.As for new business opportunities,our conversations as well as checks suggest what will be steeper initial investments for the following companies(along with the attached rationale):B what we believe will be a more offensive stance for direct acquisition of Chinese outbound travel demand facilitat
18、ed by a more expansive rollout of a mediated payment platform Expedia ongoing ramp of hotel supply/inventory as well as real time bookable vacation rental properties on HomeAway augurs a step up in advertising spend to garner incremental demand Grubhub 4Q18 launch in more cities with accompanying dr
19、iver/delivery as well as advertising expenses TripAdvisor moderating investments into hotels business to be offset by marketing and supply acquisition investments for Viator/attractions Wayfair launch in Germany as well as ongoing headcount increases for engineering To this end,we have decreased our
20、 near-term EBITDA estimates for all of BKNG,EXPE,GRUB,TRIP,and W.Hence from a stock and positioning perspective,we recommend the following:Overweight the megacaps in the near term,especially the sellers of online advertising inventory in particular Google as we anticipate what should be better-than-
21、expected advertising Websites growth for 2019 and beyond as new AI-driven products gain traction and further as it remains the primary destination for traffic acquisition as merchants/operators look to increase investments.28 January 2019 Internet 3 Take advantage of pullbacks following what should
22、be conservative initial guidance for 2019-to initiate or increase positions on BKNG,EXPE,GRUB,and W.Please see our companion piece for Online Travel(Online Travel Outlook 2019:Going on the Offensive and Following Divergent Growth Paths for further details).We have also upgraded GRUB and W shares to
23、Outperform.Updating Industry Capital Expenditures for 2019 As we have called out in prior sector preview reports,we pay particular attention to investment and harvest cycles for all of the Internet operators.This is particularly noticeable in the year over year change in capital expenditure(the firs
24、t derivative)which we show in the chart below:Figure 1:Internet Industry Year Over Year Change in Capital Expenditure US$in millions Source:Company data,Credit Suisse estimates We do concede that at this point,aggregate industry capital expenditure is driven primarily by Amazon,Facebook,and Google,e
25、specially as either AWS or GCP obviates the need for the others to invest into their own data center capacity.With that in mind,we believe 2019 will continue to be a harvest year for Amazon we also anticipate Googles capital expenditures to settle at the current run rate plateau of$5.5 billion per q
26、uarter,while Facebook should enter a harvest cycle in 2020.Updated Product Catalysts for 2019 As we had already rolled forward our valuation parameters to end-2019 in our 3Q18 earnings preview note,our price targets across the sector have not changed materially.And as we continue to believe stock pe
27、rformance throughout the balance of 2019 will hinge more on individual company and product-specific catalysts,as opposed to a broader sector-wide theme given the disparate nature of some of these businesses,we have updated our product catalysts which we show in the exhibit below.Given the sheer numb
28、er of data points,products,and catalysts,we summarize below the key points of focus that we will be monitoring throughout the year.Some are iterations of long-established products while others are new:946 718(91)(203)641 467 1535 3224 2798 3813 3808 4542 4882 4792 3593 4079 3093 2107 2379 1195(1000)
29、01000200030004000500060001Q15A 2Q15A 3Q15A 4Q15A 1Q16A 2Q16A 3Q16A 4Q16A 1Q17A 2Q17A 3Q17A4Q171Q18A 2Q18A 3Q18A 4Q18E 1Q19E 2Q19E 3Q19E 4Q19E 28 January 2019 Internet 4 Figure 2:Company-Specific Product Catalysts to Focus On for 2019 Source:Company data,Credit Suisse TickerCatalysts Continued e-comm
30、erce segment operating margin expansion as Amazon grows into its larger infrastructure Optionality for faster-than-expected free cash flow growth vis-vis its advertising segment,as effective monetization still remains low Upward bias to AWS revenue forecasts and likely more moderate deceleration as
31、suggested by ongoing capital intensity in the business Potential for better-than-expected room nights and gross booking growth due to the reduction of payment friction Open ended outbound travel growth opportunity in China Optionality for better-than-expected FCF generation due to a more aggressive
32、shift to merchant Continued roll-out of PLA to increase marketplace take rate and the addition of high-margin advertising revenue Optionality for payments to add free cash flow,in particular with potential upside from float to be generated from funds payable Ongoing product development with its stru
33、ctured data initiative,which should increase conversion rates and help GMV growth over time Stabilization of recurring revenue model with high FCF generation ARPU growth and margin expansion vis-vis the cross selling of higher-priced value-added services Faster-than-expected gains in large,underserv
34、ed SMB market Potential marketing leverage and ensuing operating margin improvement due to rising conversion on improved shopping experience Incremental gross booking and FCF dollars from HomeAway as Expedia continues to take down friction Optionality for faster product innovation following full tra
35、nsition to cloud Drive long term revenue growth without a material lift in ad loads with growth drivers including Instagram and Marketplaces Upward bias to Street estimates,which do not bake in long-term monetization of billion user products(Watch,Messenger)FCF growth recovery for 2020,which we expe
36、ct the company to signal on the 3Q19 results(November).Gaining share in a large,fragmented,and underpenetrated addressable market of$300 billionFTCH Relatively protected from larger-cap online competitors Offers long term greater exposure to rising penetration of luxury goods adoption in APAC/EM whi
37、le hedging for content risk Ongoing Search monetization improvements due to various products such as ETA,Individual Bid Adjustments Larger-than-expected contribution from larger non-search businesses-namely YouTube,Google Play,and GCP Optionality for shareholder value creation from undermonetized pr
38、oducts such as Maps as well as eventually Other Bets Potential for sustained and disciplined gross billings growth Faster-than-expected consumer and merchant adoption of Groupon Plus Faster-than-expected consolidation of restaurant supply ensuing better consumer traction of the app in lower tier mar
39、kets Faster-than-expected realization of operating leverage in particular customer support within the Operations&Support expense line Better-than-expected synergies with new partners like Yelp which now moves from being a competitor to a traffic source Better-than-expected monetization at Match driv
40、en by Tinder Stabilization of OkCupid and M PMCs Better-than-expected capture of local ad dollars for ANGI Better-than-expected traction for its new Gen 5 credit model Rationalization of its cost base including greater utilization of its lower cost site in Salt Lake City as well as outsourcing of no
41、n-critical functions Scale begets competitive advantages as more loan volume results in more data to assess risk Take rate to rise from the current 12.0%to 15.5%over the next 5 years(ex-free shipping subsidy contra)Street numbers are too low and do not credit the company for the various products alr
42、eady in market Optionality to increase take rate for on-platform MercadoPago Potential user growth recovery with the Android app release in 2019 Advertising revenue growth acceleration by 2H19(or earlier)as Snap laps the balance of the reserved/programmatic transition headwinds Snap is a scarce asse
43、t that offers advertisers access to a coveted younger demographic Ongoing and consistent higher-than-anticipated ARR lift from enterprise customers versus our current expectation of 4xSVMK Faster-than-expected growth in paid customers Higher-than-expected operating margins due to lower customer acqu
44、isition cost Better-than-expected Hotel Shopper and/or Revenue per Hotel Shopper growth Faster-than-expected advertiser adoption for Sponsored Placements Greater-than-expected contribution from TripAdvisors non-Hotel businesses Better-than-expected consumer traction due to last mile delivery and war
45、ehouse operation efforts Better-than-expected European expansion results to potentially answer questions on model sustainability Potential for more muted competitive activity from Amazon Realization of P&L impact from incremental carrier offload agreements Optionality of ARPU increases in military b
46、ase ramp due to higher priced package(gaming)offering Secular growth of data consumption due to proliferation of connected devices and streaming video Ongoing improvement in subscriber churn Better-than-expected Request a Quote monetization Better-than-expected margins following sale of food order a
47、ssets as well as Grubhub partnership Greater than expected quality and cadence of content delivery and/or better that expected commercial success of new releases Better than expected advertising monetization Step-up in operating expense reductionAMZNFBGOOGLWIFIZNGAMELISNAPGRPNBKNGEXPEIACWYELPEBAYEIG
48、ILCGRUBTRIP 28 January 2019 Internet 5 Our Large Cap Favorites Remain Google,Amazon and Facebook,in that order Alphabet(GOOGL):Given Googles scale,perceived maturity of Websites growth,coupled with an ongoing appetite to underwrite longer duration opportunities,investors often ask us what will get G
49、OOGL shares moving in 2019.Our answer is the following:1)FCF growth inflection affirmed in 4Q18 and 1Q19 results as CapEx settles at a new normalized rate of$5.5b per quarter,implying FCF growth acceleration in 1Q19,2)new ad product benefits from Responsive Search Ads as well as other new products G
50、oogle rolled out in mid-2018,3)upward bias to Websites growth due to the ongoing adoption of Smart Bidding(improved ROI augurs incremental budgets),as well as our checks indicating a heavier investment stance among advertisers/merchants for traffic acquisition.We maintain our Outperform rating as we