North America Internet Report Interpretation

Overview

This North America Internet update reviews recent share-price moves and relative valuations following earnings, focusing on how return-on-invested-capital debates and stock-based compensation affect interpretation of sector multiples. Morgan Stanley maintains an Attractive industry view.

Core views

Morgan Stanley reports that North American Internet stocks rose 8% over the week, materially ahead of the 1% gains in both the S&P 500 and Nasdaq. Performance was uneven beneath the aggregate move: Amazon rose 17.0%, Alphabet 11.4%, Expedia 13.4%, Lyft 11.7% and Take-Two 5%, while Meta fell 6.5%, Roblox fell 25.1% following earnings and Reddit declined 16.6%. At the subsector level, the market-cap-weighted weekly gains were 16.7% for e-commerce, 9.1% for shared economy and 8.9% for travel, compared with 6.9% for digital ads. The report frames current valuations through forward earnings and enterprise-value multiples. Amazon, Alphabet and Meta were described as trading at 20x, 18x and 17x 2026 EPS, respectively, representing discounts of 34%, 33% and 25% to their trailing-average levels. On a next-twelve-month EV/EBITDA basis as of July 31, Amazon stood at 12.1x, Alphabet at 9.0x and Meta at 15.9x. Relative to two-year averages, those levels were discounts of 6% and 36% for Amazon and Alphabet, respectively, but a 28% premium for Meta; relative to three-year averages, the corresponding comparisons were -8%, -33% and +32%. At the broader-sector level, Morgan Stanley's exhibits show next-twelve-month EV/EBITDA multiples 6% below five-year averages and 13% below ten-year averages, even as next-twelve-month EV/sales multiples were 20% and 22% above those respective historical averages. This contrast is central to the report's ROIC discussion: sales-based valuation can appear elevated while earnings-based valuation looks more discounted, so conclusions depend on the profitability and cost assumptions embedded in the metric. A key adjustment concerns stock-based compensation (SBC). The report shows that treating SBC as a cash expense increases EV/EBITDA multiples by about 36% on average for digital media, about 22% for video games and about 44% for travel, shared-economy and real-estate-technology companies. The analysis therefore indicates that conventional EBITDA comparisons can understate valuation when SBC is excluded from the expense base; incorporating it produces a meaningfully higher multiple and is relevant to the debate over the economic returns generated by Internet businesses. The comp sheet provides forward operating and valuation data across digital media, e-commerce, shared economy, gaming, travel and real-estate technology. Examples include Alphabet at 8.2x 2026E EV/revenue and 17.0x 2026E EV/EBITDA, Meta at 5.6x and 9.7x, Amazon at 3.6x and 13.2x, Lyft at 0.8x and 8.1x, and Expedia at 2.4x and 9.2x. These figures are presented as comparative context rather than as new subject-specific recommendations.

Analysis framework

Morgan Stanley first compares one-week price performance across Internet subsectors and individual stocks, then places major platforms' forward multiples against two- and three-year histories. It broadens the comparison to sector-wide five- and ten-year valuation averages and tests the valuation effect of treating stock-based compensation as a cash cost.

Methodology notes

• Valuation methodsEV/EBITDA valuation

  Next-twelve-month EV/EBITDA comparison against historical averages

  The report compares enterprise value to forward EBITDA for major Internet companies and the sector to assess whether valuations are above or below prior norms.

• Corporate Fundamentals and FinanceEarnings Quality Analysis

  Treating stock-based compensation as a cash expense in EBITDA

  The adjustment tests how excluding SBC can make EBITDA and therefore EV/EBITDA look more favorable than under a cash-expense treatment.

Asset mapping & comparison

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

• Amazon.com Inc. (AMZN)

  Major e-commerce constituent that led weekly performance.

  Strengths

  Rose 17.0% during the week.

  Comparison

  NTM EV/EBITDA of 12.1x was 6% below its two-year average and 8% below its three-year average.

• Alphabet Inc. (GOOGL)

  Major digital-advertising constituent included in the valuation comparison.

  Strengths

  Rose 11.4% during the week.

  Comparison

  NTM EV/EBITDA of 9.0x was 36% below its two-year average and 33% below its three-year average.

• Meta Platforms Inc. (META)

  Major digital-advertising constituent included in the valuation comparison.

  Weaknesses

  Declined 6.5% during the week.

  Comparison

  NTM EV/EBITDA of 15.9x was 28% above its two-year average and 32% above its three-year average.

• Roblox Corporation (RBLX)

  Gaming/mobile-app constituent.

  Weaknesses

  Fell 25.1% during the week following earnings.

Key data

• North America Internet one-week performance+8%Versus +1% for both the S&P 500 and Nasdaq
• Amazon / Alphabet / Meta one-week performance+17.0% / +11.4% / -6.5%Major digital-advertising and e-commerce performance divergence
• Amazon / Alphabet / Meta NTM EV/EBITDA12.1x / 9.0x / 15.9xAs of July 31, 2026
• Sector NTM EV/EBITDA versus historical averages-6% / -13%Versus five-year / ten-year averages
• Sector NTM EV/sales versus historical averages+20% / +22%Versus five-year / ten-year averages
• EV/EBITDA uplift when SBC is treated as cash~36% / ~22% / ~44%Average uplift for digital media / video games / travel, shared economy and real-estate technology

Impact & implications

The report indicates that apparent Internet-sector valuation depends materially on the metric used and on whether SBC is treated as an economic cash cost. Forward EV/EBITDA is below longer-term averages overall, but the SBC adjustment raises multiples substantially and is therefore important when evaluating profitability and ROIC.