Ecommerce and internet stocks could continue to gain as second quarter earnings season provides greater clarity on profit margins and growth trends, according to Jefferies analysts, who believe valuations across the sector remain attractive despite ongoing concerns about artificial intelligence disrupting online traffic.
The analysts wrote that relative valuations are at multi-year lows and that easing worries over AI-driven disintermediation could continue to support companies with strong earnings potential and room to outperform consensus expectations.
Jefferies also expects upcoming earnings reports to offer investors more visibility into full-year margins after several companies announced increased investment plans earlier this year.
Among ecommerce names, Jefferies maintained a ‘Buy’ rating on Carvana Co. (NYSE:CVNA), though it said its web-scraping analysis suggests retail unit growth slowed to the mid-30% range in the second quarter, slightly below consensus estimates. The firm said that would end the company's streak of nine consecutive quarterly beats if confirmed. It added that Carvana would likely need to sustain unit growth above 30% and restore retail gross profit per unit to more typical seasonal levels for the stock to perform well in the second half of the year.
Jefferies remained cautious on eBay Inc (NASDAQ:EBAY, XETRA:EBA), reiterating an ‘Underperform’ rating as it expects tougher year-over-year comparisons to weigh on gross merchandise volume growth during the second half after temporary tailwinds supported earlier results.
For Etsy Inc (NASDAQ:ETSY, XETRA:3E2), which carries a ‘Hold’ rating, the analysts expect gross merchandise sales growth to accelerate in the second quarter and continue improving through the remainder of the year, supported by recovering web traffic trends.
The firm also downgraded Pattern to ‘Hold’ after the stock's roughly 150% gain year to date. Jefferies said the company's valuation now appears to reflect its growth prospects and potential upside to consensus expectations.
Beyond ecommerce, Jefferies said it is bullish heading into earnings on Airbnb Inc (NASDAQ:ABNB, XETRA:6Z1), Instacart (NASDAQ:CART) and Reddit Inc (NYSE:RDDT), while remaining cautious on Lyft Inc (NASDAQ:LYFT) and Tripadvisor Inc (NASDAQ:TRIP).
Within delivery and mobility, the firm expects Uber Technologies Inc (NYSE:UBER, XETRA:UT8)'s mobility bookings growth to remain stable while delivery bookings growth slows modestly. It also said investors will be watching for updates on the company's capital allocation strategy following its recent bid for Delivery Hero (XETRA:DHER, OTCQX:DLVHF). Jefferies expects DoorDash Inc (NYSE:DASH) shares could respond positively if organic gross order value growth remains above 20% and incremental margins stay on track to reach about 5% by the fourth quarter.
In travel, Jefferies said it is constructive on Airbnb because of stronger traffic growth and the potential for higher full-year margin guidance. It also expects Expedia Group Inc (NASDAQ:EXPE, XETRA:E3X1) could ease investor concerns about the second half with a strong quarterly performance and a possible increase to its full-year margin outlook. By contrast, the analysts noted that investors are preparing for a potential bookings guidance reduction from Booking Holdings Inc (NASDAQ:BKNG, XETRA:PCE1) and warned that continued traffic declines at Tripadvisor could weigh on revenue and earnings.
Among advertising and social media companies, Jefferies expects Reddit to deliver another revenue and EBITDA beat, although it said the stock reaction is likely to depend on sequential growth in logged-in daily active users in the United States. The analysts also maintained a positive view on Zillow (NASDAQ:Z) while remaining more cautious on Duolingo Inc (Unlisted (US):DUOL) and Yelp Inc (NYSE:YELP).