We are now in 2022’s last trading sessions, bracketed by the Christmas and New Year holidays. The majority of investors will no doubt be happy to bid farewell to 2022 as it has been a rough ride for most segments of the market.
Looking at the year ahead, Truist Securities’ 5-star stock expert Youssef Squali reminds investors of the need for caution, saying “many uncertainties remain.”
He goes on to mention several of these, such as the extent and length of a potential recession, the size and duration of rate hikes and the resultant effects on cost of capital, currency headwinds, and industry changes such as cookie deprecation, which could “disrupt the growth trajectory of several verticals.”
The last refers specifically to Squali’s area of expertise – Internet and Digital Media stocks. And here, despite these potential difficulties, Squali sees reason for investors to take an upbeat outlook. At least that is for specific names in the sector with the analyst noting that “not all Internet companies are created equal, making 2023 a year particularly suited for stock picking.”
So, let’s go stock picking – starting with three picks from a couple of top analysts, including Squali, at Truist. Checking these stocks against the TipRanks data, we find that they are all Strong Buy-rated, featuring ample upside potential even in today’s unstable market environment. Here are the details.
NerdWallet, Inc. (NRDS)
We’ll start with a small-cap online personal financial company, NerdWallet. This company entered the public markets through an IPO held in November of 2021, and it offers its customers a wide range of online banking solutions, including personal loans and mortgages, credit cards, insurance products, personal and small business banking, and even student loan management. The company also provides personalized, unbiased, and actionable advice for customers making financial decisions, and gives expert content, a data-driven experience, and the ability to comparison shop in the online financial marketplace.
In the most recent quarter, Q322, NerdWallet brought in $142.6 million at the top line – the highest reported quarterly revenue of the four reported since the company went public. More importantly, 3Q22 saw NerdWallet’s income turn positive, with the GAAP net income hitting $0.7 million and the diluted EPS coming in at a profit of 1 cent per share; the previous three reported quarters had seen net EPS losses.
NerdWallet’s successful quarter was driven by the credit card business, which saw revenues rise 59% year-over-year to hit $57.4 million. This counterbalanced a 12% y/y loss in loan revenue, which came in at $28.4 million. The company’s other verticals, as a group, were solidly profitable, with an overall 87% y/y gain for a total of $56.8 million.
In his coverage of NerdWallet, Squali highlights the qualities that he believes will set NRDS apart over the coming year. “While the company is exposed to segments that are negatively impacted by rising rates, we view its diversified model, strong execution to-date and on-going share gains as strong differentiators that should help the stock outperform its peers in 2023. We view the current valuation as compelling and the risk/reward profile as attractive,” the analyst explained.
Putting some numbers on this view, Squali rates the shares as a Buy with a $26 price target, implying a robust upside of 197% in the next 12 months. (To watch Squali’s track record, click here.)
Of the 4 recent analyst reviews on file for NerdWallet, 3 are to Buy against 1 Hold, for a Strong Buy consensus rating. The shares are selling for $8.75, and their $16.75 average price target suggests a one-year gain of 91% lying ahead for the stock. (See NerdWallet’s stock forecast at TipRanks.)
GoDaddy (GDDY)
Next on our list is GoDaddy, a popular web domain hosting company and registrar boasting over 84 million domain names hosted, and services provided regularly for upwards of 21 million entrepreneurs. The company has an $11.71 billion market cap, and its business is supported by $1.3 billion in annual recurring revenue.
That number, the ARR, was up in 3Q22 by 10% y/y, a key fact that points toward increasing business going forward. The company’s total revenue in the quarter was over $1.03 billion, up 7% year-over-year. The top line has held steady at or near $1 billion for the past four quarters.
At the bottom line, the net income of $100 million was up a modest 2.4% y/y, but the diluted EPS of 63 cents was up 8.6% from the year-ago quarter. GoDaddy finished Q3 with $296.6 million in free cash flow, up almost 18% from the $251.5 million in 3Q21.
Looking forward, the company expects cash flow to remain robust, and is targeting $1.09 billion to $1.1 billion in FCF for the full year 2022; achieving that goal gives y/y FCF growth of 14%.
This stock has picked up the attention of Truist’s Naved Khan. The 5-star analyst explains the “key reasons” he likes GDDY for 2023. These include: “a) a diversified offering that is well positioned to navigate an uncertain macro, b) a growing payments and commerce offering, which we believe should begin to meaningfully contribute to the P&L in FY23, c) scope for continued margin expansion, which we view positively for FCF generation, and d) an active share repurchase program averaging $1B+/year, driving healthy double-digit growth in FCF/share.”
Building from this, Khan rates GDDY as a Buy. He complements that with a $110 price target that indicates his confidence in a 50% upside for the coming year. (To watch Khan’s track record, click here.)
With 6 analyst reviews on record, breaking down 5 to 1 in favor of Buy over Hold, GoDaddy’s Strong Buy consensus rating finds strong analyst support. The shares are trading for $74.65 and their $94.50 average price target implies a 26% appreciation from that level. (See GoDaddy’s stock forecast at TipRanks.)
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DoubleVerify Holdings (DV)
Last on our Truist list is DoubleVerify, a company that works to increase trust in digital advertising through improving the safety and security of the online advertising ecosystem. The company combines both fraud verification and brand reputation, to build up stronger trust from both sides of the equation. DoubleVerify was a pioneer in digital ad verification, and its media authentications services are in use by customers in the financial service, retail, automotive, travel, telecom, and pharmaceutical sectors.
Since going public in the spring of 2021, DoubleVerify has mostly seen a trend of rising revenues, peaking at $112.3 million total revenue in 3Q22. That result was a company record, and included a 48% y/y increase in Activation Revenue, which reached $62.2 million. The company’s Measurement Revenue grew 14% y/y, and reached a total of $38.8 million, and Supply Side revenue, at $11.2 million, was up 57% from the prior year.
During the quarter, DoubleVerify expanded its partnerships with TikTok. The program leverages DV’s AI technology to improve and support ad security, so that advertisers on the TikTok platform can be certain that their ads are appearing next to appropriate content.
In an important step to improve DV’s own reputation in advertising security, the company during Q3 achieved ISO 27001:2013 certification. This is the most widely recognized international standard for information security management; adhering to it demonstrates DV’s commitment to building both operational excellence and trust among clients.
We’ll check in again with Youssef Squali, who covers DoubleVerify for Truist. In his notes on the stock, Squali points out multiple growth opportunities, including particularly the ever-growing social media field: “Social is a compelling growth opportunity as DV has expanded its solutions to various platforms including TikTok, LinkedIn (MSFT), Reddit, and Twitch (owned by AMZN), aside from its two largest channels Facebook/Instagram (just 7% of revs), and YouTube. We believe social media as a channel has unlocked incremental spend for DV to attack within walled gardens, which advertisers value vs. letting these platforms ‘grade their own homework.’ As identifiers and cookies disappear, marketers are also turning to 3P solution providers like DV to make up for signal losses in depreciating ROAS (return on ad spend).”
Looking forward to DV’s prospects in the coming year, Squali rates the shares as Buy, with a $36 price target that suggests a gain of 65% in the next 12 months.
DoubleVerify brings a Strong Buy consensus rating to the table, backed by 5 recent analyst reviews that include 4 Buys and 1 Hold. The shares are selling for $21.74 and their $30.50 average price target implies a gain of 40% on the one-year time horizon. (See DoubleVerify’s stock forecast at TipRanks.)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
