The party’s over, time to clean up.
That’s the way UBS analyst Eric Sheridan is thinking ahead of the coming deluge of December-quarter earnings reports for internet and gaming stocks.
He notes that heading into 2021, the dominant theme remains the duration of the Covid-19 pandemic, with investors looking for answers on just how sustainable the shifts in consumer and corporate behavior will be. But he also thinks investors should clean up their portfolios, and on Tuesday he downgraded stocks where he sees the risk/reward skews neutral to negative after they posted outsize gains in 2020.
In particular, Sheridan cuts his ratings on the online marketplace Fiverr (ticker: FVRR), pet-products purveyor Chewy (CHWY), and connected-bike company Peloton Interactive (PTON) to Sell from Neutral, while shifting to Neutral from Buy on Take-Two Interactive (TTWO).
On the three new Sell ratings, he writes that “we collectively see all three as emblematic of a market that values growth over any semblance of valuation that can be justified on a multiple year view based on our fundamental analysis.” He thinks investors “need to be wary of the rising trend of bull market optimism in a handful of businesses that have been either Covid-19 ‘beneficiaries’ and/or have come to the public markets in the last 6-18 months.”
The analyst also maintains his Buy ratings on three of the largest internet companies— Amazon.com (AMZN), Facebook (FB), and Alphabet (GOOGL)—though he notes they have been laggards on concerns about regulatory exposure and growth.
Among smaller-cap names, Sheridan sees potential reopening plays in Groupon (GRPN) and RealReal (REAL), and he sees opportunities in both Zynga (ZNGA) and Glu Mobile (GLUU), which he says have been hurt by concerns about Apple’s (AAPL) more aggressive approach to providing consumers a way to opt out of online activity tracking.
Fiverr shares are down 11.5%, at $236.47, in recent trading. Peloton is off 7.5%, at $146.01, and Chewy is down 1.6%, at $106.39. Take-Two is up 1.2%, at $198.70.
