Updated: May 17
This year has featured huge gains for many technology firms, but not every stay-at-home winner will thrive in a post-pandemic world. The analysts at Piper Sandler looked to separate the long-term winners from the laggards heading into the new year.
In terms of internet stocks, the analysts named Zillow Group (ticker: ZG), Lyft (LYFT), and Penn National Gaming (PENN) their picks for 2021. They’re less upbeat about Electronic Arts (EA).
Those analysts—Thomas Champion, Alexander Potter and Yung Kim—point to a trend of product innovation and accelerating cloud infrastructure adoption that they expect to continue into 2021. For transportation, they note that Covid-19 has had “an undeniable impact on consumer behavior.” Meanwhile, they believe budget shortfalls for state governments could spur wider adoption of legal online betting.
With that in mind, Champion has an Overweight rating on Zillow stock with a $159 price target. He argues the digitization of real estate will continue to benefit Zillow, whose stock was trading around $134 recently.
“Zillow’s position at the top of the funnel drives demand for its ad-driven model,” he noted.
Meanwhile, he believes consumers’ ability to work from home bodes well for the company’s online real estate marketplace. He notes that Zillow’s earnings before interest, taxes, depreciation, and amortization margins in its core internet, media, and technology segment of 47% in the third quarter of 2020 were “the highest in company history.”
He also thinks iBuying, where Zillow buys real estate directly from sellers and sells them to prospective buyers, represents a giant total addressable market, and plays well into consumer habits. Meanwhile, he expects interest rates, which affect mortgage rates, to continue to be accommodative through 2022, at least.
For Lyft, analyst Alexander Potter has a $61 price target and an Overweight rating. The stock recently traded around $49. He notes that few companies he covers suffered more than Lyft in 2020, but expects weak comparisons to set up an easier bar to leap over in 2021. He expects 50%-plus year-over-year growth for the ride-hailing firm.
Kim has an Overweight rating on Penn National stock with a $84 price target. Shares of the company recently traded around $82. He notes that the company is still beginning the launch of its Barstool Sports branded sportsbook app.
“Barstool’s national following bodes well for app launches in additional states,” Kim wrote.
He expects a stabilization and return of major sports leagues and events to provide a positive tailwind, while an easing of Covid-19 policies can drive growth.
Kim called Electronic Arts a pan for 2021, though he still has a Neutral rating and $133 price target. He expects the company to face challenges growing its free-to-play battle-royale game Apex Legends without moving into China or expanding a mobile offering.
He noted that attention next year will be placed on EA’s coming Battlefield game that’s expected to hit shelves ahead of the 2021 holiday season. He also noted that its popular live-services offerings, like FIFA Ultimate Team, where users spend money on virtual trading card packs that unlock players in the Ultimate Team game mode, face a tough comparison from 2020. With users stuck at home, Covid-19 helped boost engagement.
Zillow stock closed up 0.3% to $138.08 on Tuesday, while Lyft shares were up 5.4% to $49.30. Penn National stock was up 5.2% to $83.09, while EA stock was up 2.3% to $140.66. The S&P 500 index was up 1.3%.