Flutter Entertainment PLC (LSE:FLTR) and Deliveroo PLC (LSE:ROO) are first and third among the 'top picks' among European internet stocks for Morgan Stanley (NYSE:MS).
Updating its views across the EU internet sector, the investment bank said it favoured Deliveroo in food delivery after it became profitable and generated free cash flow in the first half of this year.
Deliveroo also has high exposure to the "resilient" UK market, has a "robust" cash position of £0.5 billion after its latest buyback, and "a leaner geographic focus" of around 10 countries compared to Just Eat's 17 and Delivery Hero (ETR:DHER, OTCQX:DLVHF)'s 70, "which provides for a simpler equity story".
Morgan Stanley (NYSE:MS) analysts said "where we could be wrong" is that order growth is "still muted" at 1.5% amidst a soft macroeconomic environment and with competition still high.
In the gambling sector, Morgan Stanley picked Flutter and Italy's Lottomatica as top picks, pointing to Flutter's US profit inflection as "transforming its financials and valuation lens while creating balance sheet capacity for strategic M&A and returns"
Entain is also rated 'overweight' for its online turnaround potential, strategic optionality (ie it might be taken over) and "low valuation".
In the online entertainment sector, the bank's analysts have a preference for music over video games, with Universal Music Group (EURONEXT:UMG )positioned as a strong play. CD Projekt is rated Underweight, with concerns over its pricing and game release timeline.