Looking forward to 2025, the macro resilience will continue, with the continuous introduction of GenAI technology, and the performance boom cycle of the US stock Internet sector is expected to continue, which is reflected in online advertising, e-commerce, streaming media, local life, financial technology and other sectors. However, the Trump administration has imposed tariffs and; Industry regulatory policies, inflation data, and advances in AI technology are expected to be continuous disruptive variables that require close attention. At the individual stock level, the first-line Internet giants will still be the basic allocation. At the same time, we recommend that investors increase the allocation of small and medium-sized stocks in advertising technology, financial technology and other fields to enhance portfolio flexibility.
Internet in the US stock market in 2025: continue to maintain the overall optimistic view of the industry.
In terms of macroeconomics, at this point in time, the risks of the US economy and inflation are relatively balanced, and US consumption remains resilient, approaching a "soft landing". In terms of valuation, from January 1 to December 6, 2024, the overall performance of the US stock Internet sector was strong, Meta、 Google, Amazon, Netflix and Uber increased by 72%/23%/41%/92%/23% respectively. This round of Internet asset growth is accompanied by economic resilience, cost reduction and efficiency increase, AI application and other catalytic performance expectations. The current valuation level basically matches the growth expectations of the next two years. We expect that the 2025 valuation may become a neutral factor, but the overall is still in a reasonable range. The continuity of macro resilience, combined with the introduction of AI commercialization of major companies, the increase of major business shares, the rise of profit margins, Trump government policies and other factors, is expected to become the main catalyst for the subsequent Internet segment.
Online advertising: With the continuous introduction of AI and macro resilience, it is expected that the revenue growth rate will reach mid to double digits by 2025.
Global online advertising, as a cyclical sector, has strong certainty driven by macro resilience, and is catalyzed by AI penetration and commercialization.
In terms of the overall market, the global advertising market has maintained strong performance since 2024. We expect the top platforms to maintain mid to double-digit growth by 2025, driven by factors such as a soft landing in the US economy, resilience in the consumer market, and advancements in AI technology.
In terms of AI technology, the impact of AI technology on advertising is reflected in the following dimensions: 1) the improvement of transformation efficiency drives price growth, 2) content recommendation and advertising form optimization drives exposure growth, 3) cost optimization, etc. We expect that the follow-up AI will bring double-digit additional revenue growth to the advertising business income of Internet companies. Ad Tech companies represented by AppLovin and The Trade Desk are upgrading their data and AI models to increase advertising efficiency in areas such as mid to long tail traffic and CTV, resulting in more significant optimization effects. They are paying attention to the pace of algorithm updates and iterations. Follow up focus: anti-monopoly policies of the US government, regulation of overseas companies, etc.
E-commerce: Focus on first-line manufacturers and pay attention to the potential impact of tariffs and inflation.
Since 2024, the improvement of infrastructure, changes in the structure of American consumers, and the rapid development of low-priced e-commerce have driven an increase in penetration rate, and the competitive landscape of e-commerce platforms has shown a significant head effect; In terms of profits, e-commerce platforms are expected to release profits through revenue dilution effects, performance efficiency optimization, advertising subscription revenue growth, AI and other technological developments. The total e-commerce volume in the United States in Q1/Q2 of 2024 was $2680/282.3 billion (+8.4%/6.6% year-on-year), with penetration rates of 20.1%/19.6% (+2.1/1.8 ppts year-on-year). Against the backdrop of expected mild inflation and potential tariff increases in 2025, investors are concerned about the impact of price fluctuations and price sensitive consumer demand changes on e-commerce platform pricing strategies and profit margins. We believe that if the Trump administration significantly increases tariffs, the additional tariff costs of the e-commerce industry may be passed on to consumers, and the overall order volume of the industry may be affected. However, ASP is expected to stabilize and recover, and the optimization of performance costs, diversified income, and income tax cuts are expected to offset profit pressures. The imposition of tariffs by the grid may narrow the price difference between top platforms and emerging low-priced e-commerce platforms.
Streaming media: Content optimization combined with advertising growth, entering a profit release cycle.
As of December 9, 2024, the stock prices of first tier streaming platforms such as Netflix and Spotify have significantly exceeded the industry average, mainly due to the growth brought by new businesses such as content release, cost optimization, and advertising. We believe that by 2025, with the accelerated release of mainstream platform content, the constraints on content supply will be significantly alleviated. Coupled with macro level resilience, the possibility of streaming media price increases will further increase. Considering that streaming media advertising is expected to accelerate growth in 2025, we believe that the US streaming media sector will still have investment opportunities in 2025.
Local Life: Profit Improvement Continues, Pay Attention to Robotaxi Pattern Disturbance.
In terms of growth, according to Uber Investor Day data, the penetration rate of ride hailing services in North America will only be 7% by the end of 2023. We estimate that an increase in penetration rate per 1ppt in North America will lead to an increase in order volume of over 20%. It is expected that the North American ride hailing market will continue to maintain a growth rate of over 20% in 2025, and growth is still worth looking forward to.
In terms of competitive landscape, according to Bloomberg Second Measure, as of March 2024, Uber and Lyft hold approximately 76%/24% of the North American market share. We estimate that the landscape is likely to remain stable under mainstream manufacturers' profit oriented operational strategies.
In terms of Robotaxi, Tesla expects Cybercab, as a heavyweight product in the field of autonomous taxis, to be put into production in 2026, while Uber's ride hailing platform will increase cooperation with third-party autonomous driving companies and start Robotaxi trial operations. We believe that Uber is expected to continue to grow rapidly with the advantages of vehicle supply and user network effects, and remain competitive in the Robotaxi era.
In terms of profit margin, the potential for improvement in the profit margin of ride hailing services comes from driver incentives, advertising business, membership, and the downward movement of fixed costs. Uber predicts in its 2024 investor day document that the total order volume will maintain a growth rate of 15% to 20% in the next three years, and adjusted EBITDA will maintain a growth rate of 35% to 40%. The trend of profit improvement will continue.
Fintech: One of the core beneficiaries of regulatory relaxation.
In terms of industry, we expect that by 2025, with the soft landing of the economy and the entry of interest rates into a downward channel, fundamentals are expected to improve, and top companies will gradually resume growth after the industry clears.
In terms of regulation, the Trump administration has proposed reducing excessive regulation and establishing a regulatory framework for cryptocurrencies in both the previous presidential term and this election. If regulatory relaxation measures are implemented, it is expected to provide support for financial companies to expand their profits and balance sheets.
In terms of profitability, fintech companies are expected to quickly release their profitability, and we expect the driving force to mainly come from: 1) PayPal and other payment companies raising payment rates, 2) enterprises providing more new payment and credit products for 2C users, and 3) interest rate cuts optimizing capital costs and reducing default rates.
Risk factors:
The risk caused by the repeated deterioration of inflation in the United States; The risk of valuation decline caused by the rise of long-term interest rates; The risk of weak consumption due to macroeconomic weakness in the United States; The risk of cash flow and profit pressure caused by new business investment; Risks caused by anti-monopoly, data privacy and other regulatory measures; Risks caused by changes in the competitive landscape of the industry.
Investment Strategy:
We continue to look at the performance of the Internet sector in the US stock market in 2025, and suggest selecting stocks from AI progress, new business growth, share change, profitability, policy friendliness and other dimensions.
1) The Internet giant is the AI and macro amplifier of the US stock market, and its position as the basic configuration choice of the technology sector remains unchanged.
2) Medium market Internet companies have the characteristics of AI penetration acceleration and rapid profit growth. The change of the market competition pattern is an important factor affecting the stock price.