Equity Research Price Objectives and Risk Factors for Alphabet, Amazon, Bankrate, and Care.com

Price objective basis & risk Alphabet (GOOGL / GOOG) Our price objective is $1025/$1025, representing 17x our core 2018 Google non-GAAP EPS estimate (excluding non-Google losses), plus $118/share in cash, or 21x core Google GAAP EPS plus cash. Alphabet has traded at 12-24x forward P/E over the last five years and we think our 17x multiple is reasonable given shareholder friendly actions that include the non-core revenue and operating loss disclosures, and stock buybacks. Downside risks to our PO are: 1) Search revenue growth decelerates faster than anticipated due to market maturity, 2) mobile transition drives negative search behavior changes, 3) revenue growth pressure from competitor initiatives, 4) margins disappoint due to revenue mix and investment initiatives, and 5) negative regulatory changes, including EU antitrust. The stock has been subject to heavy volatility in the past based on revenue growth and margin trends and this volatility could increase if economic conditions deteriorate. Amazon.com (AMZN) Our PO of $1,100 is based on our SOP that values AWS at $127bn or $259 per share and the retail business at $413bn or $841 per share. Our 5.5x AWS multiple is a modest premium to the software/SaaS comp group at 5.0x on 2018 sales, and 0.9x multiple is a premium to a retail general merchandise comp group at 0.7x. We think the premiums are warranted given share gains and superior growth. Our $1,100 price objective implies 2.8x 2018E Price/Sales, a multiple above the high end of Amazon's historical range of 1.0-2.5x. We argue the historical P/S multiple should increase given positive 3rd party sales (3P) that is reported on a net basis, a higher AWS revenue contribution, and record gross profit margins. Downside risks to our price objective are a consumer spending slowdown, rich P/E multiple, margin or growth pressure from the digitization of media, more aggressive offline competition, hardware strategy, AWS investments and/or price cuts, Prime Instant Video content costs, and decelerating growth. The stock has been subject to heavy volatility in the past, based on margin trends, and this volatility could increase due to economic uncertainty. Bankrate (RATE) Our $13 price objective is based on 9x our 2018E EV/EBITDA, a slight discount to the online lead-gen and marketplace peer group average of 11x. We believe it is reasonable for RATE to trade at a slight discount given RATE's recent challenges to both growth and margins and its position as a turnaround in the space. Downside risks to our PO are: 1) limited visibility into intra-quarter trends, 2) stock dependent on economic outlook, 3) card issuer spending is volatile and the turnaround is short lived, 4) slower growth in personal loans than expected, 5) higher than expected marketing spending to drive traffic to Bankrate sites, resulting in lower margins, 6) Google changes have a negative impact on marketing margins and EPS, 7) competition with other consumer finance sites, and 8) a large acquisition. Care.com (CRCM) Our $9 price objective is based on 1.3x 2018E EV/Sales or 10x 2018E EV/EBITDA, in line with small cap ecommerce and subscription peers. Care.com has category leadership and a large TAM, but we do not believe 7% 2-yr expected revenue growth warrants a premium to peers. At the same time, we believe that the Google Capital investment could provide some downside support on take-out potential. Downside risks to our PO are 1) need to add more customers each year to grow given high churn, 2) competition from SitterCity and Homestead, and 3) new care offerings Bankof America Merrill Lynch Internet/e-Commerce | 06 April2017 53 HOUSE_OVERSIGHT_014939