North America Internet Report Interpretation

Overview

This update reviews recent North American Internet-sector trading and relative valuations as AI uncertainties re-emerge. Morgan Stanley keeps an Attractive industry view and emphasizes that forward EV/EBITDA valuation remains below longer-term norms even though revenue-based multiples remain elevated.

Core views

Morgan Stanley reports that North American Internet names rose 1% over the latest week, while the S&P 500 and Nasdaq each declined 1%. Meta led the large platforms with a 5% gain; Alphabet was flat and Amazon fell 1%. Performance was notably weaker in travel and shared economy: Airbnb, Booking Holdings and Expedia declined 6.5%, 10.0% and 5.8%, respectively, while Uber, DoorDash, Instacart and Lyft declined 5.4%, 4.6%, 4.6% and 8.4%. The market-cap-weighted travel group fell 8.1% and shared economy fell 5.2%, compared with a 2.1% gain for digital ads and a 0.6% decline for e-commerce. The report frames valuation through forward enterprise-value multiples. As of September 11, Amazon traded at 11.0x next-12-month EV/EBITDA, compared with its 12.7x two-year and 13.0x three-year averages; Alphabet traded at 14.6x, versus 14.1x and 13.5x; and Meta traded at 10.1x, versus 12.3x and 12.0x. This equates to discounts versus the two-year average of 13% for Amazon and 18% for Meta, while Alphabet traded at a 3% premium. Versus three-year averages, Amazon and Meta were at 15% and 16% discounts, while Alphabet was at an 8% premium. At the broader level, next-12-month EV/EBITDA multiples were 9% below five-year averages and 17% below 10-year averages, even as next-12-month EV/sales multiples stood 17% and 18% above those respective averages. Morgan Stanley also highlights that conventional EV/EBITDA comparisons can understate valuation when stock-based compensation is treated as an economic cash expense. On that basis, average EV/EBITDA multiples increase by about 36% for digital media, 30% for e-commerce, 15% for video games, and 44% for travel, shared economy and real-estate technology. The adjustment is intended to make comparisons more economically complete across subsectors with differing stock-based-compensation intensity. The report’s industry conclusion is Attractive for North America Internet over its stated 12-18 month industry-view horizon. Its evidence is the combination of relative EV/EBITDA discounts for several large platforms and the sector’s recent relative resilience, set against renewed AI-related uncertainty and pronounced dispersion across Internet business models.

Analysis framework

Morgan Stanley first compares one-week price performance across Internet subsectors and major stocks, then places the largest platforms’ next-12-month EV/EBITDA multiples against historical averages. It supplements this with sector-level EV/EBITDA and EV/sales comparisons and adjusts EV/EBITDA for stock-based compensation to show the effect of treating that expense as cash.

Methodology notes

• Valuation methodsEV/EBITDA valuation

  Next-12-month EV/EBITDA relative to historical averages

  The report compares enterprise value to expected EBITDA for major platforms and the sector with two-, three-, five- and 10-year averages to identify relative valuation premiums or discounts.

• Valuation methods

  Treating stock-based compensation as a cash expense in EV/EBITDA

  Morgan Stanley recalculates the valuation lens by recognizing stock-based compensation as an economic cash cost, which increases the apparent EV/EBITDA multiple and makes the effect comparable across subsectors.

Asset mapping & comparison

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

• Meta Platforms (META)

  Large digital-advertising platform highlighted as the week’s leading major Internet stock and as a valuation comparison.

  Strengths

  Rose 5% during the week; 10.1x NTM EV/EBITDA was below both two- and three-year averages.

  Comparison

  18% below its two-year average and 16% below its three-year average on NTM EV/EBITDA.

  Risks

  AI-related uncertainty is part of the report’s sector backdrop.

• Amazon.com (AMZN)

  Large e-commerce platform used in the report’s major-platform valuation comparison.

  Strengths

  11.0x NTM EV/EBITDA was below its two- and three-year averages.

  Weaknesses

  Shares declined 0.7% over the week.

  Comparison

  13% below its two-year average and 15% below its three-year average on NTM EV/EBITDA.

  Risks

  AI-related uncertainty is part of the report’s sector backdrop.

• Alphabet (GOOGL)

  Large digital-advertising platform used in the report’s major-platform valuation comparison.

  Strengths

  Shares were flat during the week.

  Weaknesses

  Its forward EV/EBITDA traded above both cited historical averages.

  Comparison

  14.6x NTM EV/EBITDA was 3% above its two-year average and 8% above its three-year average.

  Risks

  AI-related uncertainty is part of the report’s sector backdrop.

Key data

• Internet sector one-week performance+1%Compared with -1% for both the S&P 500 and Nasdaq.
• Digital ads market-cap-weighted one-week performance+2.1%Meta gained 5.1%, while Alphabet was flat.
• Travel market-cap-weighted one-week performance-8.1%Airbnb, Booking Holdings and Expedia declined 6.5%, 10.0% and 5.8%.
• Shared economy market-cap-weighted one-week performance-5.2%Uber, DoorDash, Instacart and Lyft all declined during the week.
• Amazon NTM EV/EBITDA11.0x13% below its two-year average and 15% below its three-year average.
• Alphabet NTM EV/EBITDA14.6x3% above its two-year average and 8% above its three-year average.
• Meta NTM EV/EBITDA10.1x18% below its two-year average and 16% below its three-year average.
• Internet NTM EV/EBITDA versus history-9% / -17%Versus five-year and 10-year averages, respectively.
• Internet NTM EV/sales versus history+17% / +18%Versus five-year and 10-year averages, respectively.
• SBC-adjusted EV/EBITDA uplift~36% digital media; ~30% e-commerce; ~15% video games; ~44% travel/shared economy/real-estate techAverage increase when stock-based compensation is treated as cash.

Impact & implications

Morgan Stanley’s Attractive industry view rests on below-history EV/EBITDA levels for much of the Internet universe, particularly Amazon and Meta, rather than uniformly strong near-term share-price momentum. The update also indicates that valuation comparisons should account for stock-based compensation, which can materially raise apparent multiples, and that recent trading has diverged sharply between digital advertising and travel/shared-economy businesses.

Risks

• The report’s title identifies returning AI-related uncertainties as a sector risk backdrop.
• Recent performance was highly uneven, with travel and shared-economy groups materially underperforming the broader Internet sector.