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North American internet sector pulls back overall ahead of the 2Q earnings season, with META/GOOGL under pressure and AMZN relatively resilient

Institution
Morgan Stanley
Date
2026-07-21
Authors
Brian Nowak, CFA, Matthew Cost, Nathan Feather, Julian Herrera, Gregory Gao, Kavya A Narayanan, Nikhil Javeri, Cela VanLieshout
Company
META PLATFORMS INC
Ticker
META.US
Industry
Internet Content & Information
Rating
Overweight (O)
NeutralLow confidenceThe report focuses on trading positioning and valuation comparisons in the North American internet sector ahead of the 2Q earnings season. Internet stocks as a whole fell 4% over the past week, with META and GOOGL both down about 3%, but the 2026 EPS multiples of core large-cap internet companies remain below their past 12-month averages, indicating the coexistence of short-term price pressure and relative valuation compression.
AuthorsBrian Nowak, CFA, Matthew Cost, Nathan Feather, Julian Herrera, Gregory Gao, Kavya A Narayanan, Nikhil Javeri, Cela VanLieshout
CoverageUnited States
Business segmentsDigital Advertising、E-commerce、Video Games、Travel/Sharing Economy、PropTech
Research firm divisions/subsidiariesMorgan Stanley（Other）

AI summary card

North American internet sector pulls back overall ahead of the 2Q earnings season, with META/GOOGL under pressure and AMZN relatively resilient

Morgan Stanley reviews North American internet companies' pre-earnings stock prices, valuations, and SBC adjustment impact, showing the sector fell 4% over the week, while the 2026 EPS multiples of AMZN/GOOGL/META still remain below their past 12-month averages.

The disclosure table shows Meta Platforms Inc (META.O) rated Overweight (O), with a price of $645.85; Morgan Stanley equity ratings typically reflect a 12-18 month relative return perspective.
InternetNorth America2Q Earnings SeasonValuation ComparisonSBC AdjustmentMETAAMZNGOOGL
  • Internet stocks fell 4% over the past week, while SPX/NDX fell 2%/4% over the same period.
  • META and GOOGL both fell about 3%, while AMZN rose 1%, showing relatively stronger performance among large internet stocks.
  • AMZN/GOOGL/META trade at 2026 EPS multiples of 26x/23x/20x, respectively, 17%/11%/16% below their past 12-month averages.
  • The report assesses trading positioning across internet subsectors through tables of EV/EBITDA, EV/Sales, P/FCF, P/E, and stock price performance.
  • Treating SBC as a cash cost would materially raise EV/EBITDA multiples, by about 36% on average for digital media, about 30% for e-commerce, about 22% for video games, and about 44% for travel/sharing economy/proptech.

Report interpretation

Overview

This report is Morgan Stanley's review of trading positioning in the North American internet sector heading into the 2Q earnings season, covering large internet companies, digital advertising, e-commerce, video games, travel/sharing economy, and proptech, among other subsectors. The core purpose is not to provide a deep earnings forecast for a single company, but rather to judge the internet sector's current trading state versus historical ranges and the broader market through peer comparison tables, short-term stock price performance, valuation multiples, and SBC cash-cost adjustments.

Core views

The report shows weak short-term performance in the internet sector: internet stocks as a whole fell 4% over the past week, with META and GOOGL each down about 3%, APP down 16%, RDDT down 7%, SNAP down 3%, while AMZN rose 1%. However, from a valuation perspective, AMZN, GOOGL, and META trade at 2026 EPS multiples of 26x, 23x, and 20x, respectively, 17%, 11%, and 16% below their past 12-month averages, suggesting some valuation compression has already occurred in certain large internet stocks ahead of earnings season. At the same time, the report notes that NTM EV/EBITDA multiples are 6%/13% below 5-year/10-year averages, while NTM EV/Sales multiples are 18%/20% above 5-year/10-year averages, indicating that conclusions are not fully consistent across different valuation measures.

Analysis framework

The report adopts a horizontal comparable-company analysis approach, presenting stock price performance, short interest, valuation multiples, and deviations from historical averages by internet subsector, while focusing on major internet bellwethers AMZN, GOOGL, and META as key comparison targets. The analysis also adds an SBC-as-cash-cost adjustment perspective to assess the impact of stock-based compensation on EV/EBITDA valuation.

Methodology notes

  • Valuation ComparisonComparable Company Valuation Multiples

    NTM EV/EBITDA, NTM EV/Sales, P/FCF, P/E

    Measures the current trading positioning of internet companies by comparing forward 12-month or forward annual valuation multiples with historical averages.

  • Stock Price PerformanceShort-Period Price Momentum Comparison

    One-week, one-month, year-to-date stock price performance

    The report lists the Top 10 and Bottom 10 stock performers to identify market preference and pressure concentration ahead of earnings season.

  • Earnings Quality AdjustmentSBC Cash-Cost Adjustment

    EV/EBITDA adjustment after treating stock-based compensation as a cash cost

    The report shows that if SBC is treated as a cash cost, EV/EBITDA multiples for digital media, e-commerce, video games, and travel/sharing economy/proptech sectors would rise materially.

  • Rating FrameworkMorgan Stanley Relative Rating System

    Overweight, Equal-weight, Not-Rated, Underweight

    Morgan Stanley ratings represent expected risk-adjusted total return relative to the industry coverage universe over the next 12-18 months and are not equivalent to traditional Buy/Hold/Sell definitions.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

  • META.US
    Covered company in the report's disclosure table and a specifically highlighted large internet stock
    Strengths
    Its 2026 EPS multiple is 20x, 16% below its past 12-month average, and the disclosed rating is Overweight (O).
    Weaknesses
    Its stock price fell about 3% over the past week, coming under short-term pressure along with the internet sector.
    Comparison
    Compared with AMZN's 26x and GOOGL's 23x 2026 EPS multiples, META's multiple is lower; however, all three are below their past 12-month averages.
    Risks
    Advertising demand, regulation, AI and infrastructure investment, SBC costs, and changes in earnings guidance could affect valuation.
  • AMZN.US
    Comparable large internet company
    Strengths
    Rose 1% over the past week, outperforming META and GOOGL.
    Weaknesses
    Its 2026 EPS multiple is 26x, the highest among the three companies.
    Comparison
    AMZN is 17% below its past 12-month average, a larger pullback than GOOGL and META.
    Risks
    E-commerce consumption, cloud business growth, margins, and changes in capital expenditure could affect valuation.
  • GOOGL.US
    Comparable large internet company
    Strengths
    Its 2026 EPS multiple is 23x, 11% below its past 12-month average.
    Weaknesses
    Fell about 3% over the past week, showing weak short-term performance.
    Comparison
    Its valuation multiple sits between AMZN and META.
    Risks
    Digital advertising demand, AI search competition, regulation, and capital expenditure could affect market expectations.

Key data

  • One-week performance of the internet sector-4%SPX/NDX were -2%/-4% over the same period.
  • META one-week performanceabout -3%The report says both META and GOOGL fell about 3%.
  • GOOGL one-week performanceabout -3%Along with META, it was one of the declining large internet stocks.
  • AMZN one-week performance+1%Relatively resilient among the large internet stocks mentioned in the report.
  • AMZN 2026 EPS multiple26x17% below its past 12-month average.
  • GOOGL 2026 EPS multiple23x11% below its past 12-month average.
  • META 2026 EPS multiple20x16% below its past 12-month average.
  • NTM EV/EBITDA relative to historical average6%/13% below 5-year/10-year averagesUsed by the report to assess the overall valuation positioning of the internet sector.
  • NTM EV/Sales relative to historical average18%/20% above 5-year/10-year averagesCreates a different conclusion from the EV/EBITDA measure.
  • Impact of SBC cash-cost treatment on digital media EV/EBITDAaverage increase of about 36%The report highlights the important impact of stock-based compensation on valuation comparability.
  • Impact of SBC cash-cost treatment on e-commerce EV/EBITDAaverage increase of about 30%From Exhibit 9 of the report.
  • Impact of SBC cash-cost treatment on video games EV/EBITDAaverage increase of about 22%From Exhibit 10 of the report.
  • Impact of SBC cash-cost treatment on travel/sharing economy/proptech EV/EBITDAaverage increase of about 44%From Exhibit 11 of the report.

Impact & implications

Heading into the 2Q earnings season, short-term trading sentiment in the internet sector is weak, but some earnings multiples of major internet leaders have already fallen below their recent 12-month averages, which could make earnings guidance, advertising demand, returns on AI investment, and consumer and e-commerce trends key drivers of the next round of stock repricing. Valuation assessment needs to consider different measures such as EV/EBITDA and EV/Sales simultaneously, especially since valuations of high-SBC companies may rise materially after cash-cost adjustments.

Risks

  • Short-term momentum in the internet sector is weak heading into earnings season; if results or guidance disappoint, the pullback may continue.
  • Valuation signals from EV/EBITDA and EV/Sales relative to historical averages are inconsistent, which may make investment conclusions sensitive to the choice of metric.
  • If stock-based compensation is treated as a cash cost for high-SBC companies, valuation multiples would rise materially, affecting cross-sectional comparability.
  • The report discloses that Morgan Stanley and related personnel have shareholdings, investment banking relationships, or other service relationships with multiple covered companies, and investors should pay attention to potential conflicts of interest.
  • Ratings and historical prices may change, and the report recommends reviewing the latest research on each company.

What to watch

  • Whether demand across subsectors such as advertising, e-commerce, travel, and gaming improves in 2Q earnings.
  • Whether the discounts of AMZN, GOOGL, and META versus historical averages narrow as earnings are delivered.
  • Whether stocks with larger recent declines such as APP, RDDT, and SNAP see fundamental validation or continue to face pressure.
  • The impact of post-SBC-cashification EV/EBITDA multiples on valuation reassessment for high-growth internet companies.
  • Whether Morgan Stanley subsequently updates individual stock ratings, target prices, or sector views.
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