Internet-focused equities posted substantial losses in the first quarter, with an average decline of 23% across BofA's coverage universe, compared with a 5% drop for the S&P 500.
Bank of America identified five principal investor concerns weighing on the group. These include capital expenditure levels accompanied by pressure on return on invested capital; the influence of new initial public offerings and related fund flows; the risk of disruption from artificial intelligence; macroeconomic uncertainty related to elevated gas prices; and litigation affecting social media companies.
On valuation measures, BofA reported that its internet coverage traded at 10 times estimated 2027 EBITDA at quarter end, below the five-year average of 16 times. Price-to-earnings and price-to-free-cash-flow ratios were also reported beneath their five-year averages, at 15 times versus an average of 33 times.
Smaller-cap internet names were even more discounted, trading at 7 times EBITDA compared with a 16 times five-year average. BofA added that all subsectors - including online media, eCommerce, travel, the gig economy and gaming - were valued under their respective five-year averages.
The bank highlighted a set of buy-rated names that have fallen materially year-to-date. DoorDash, Take-Two and Chewy each dropped at least 15% year-to-date while showing limited revisions to 2027 revenue expectations and limited exposure to competition driven by AI, according to BofA.
BofA's quality screen, which scores companies based on size, operating margins, return on equity and beta, showed stark bifurcation in quarterly performance. Stocks that scored highest on that quality measure fell 8% in the quarter, while the lowest-scoring cohort declined 25%. The five highest-rated names on that screen were Google, eBay, Meta, Airbnb and Booking.
Finally, the analysts noted that Amazon and DoorDash carry positive exposure to a resolution of Middle East conflict through the transmission channel of lower gas prices, and that both firms retain attractive fundamentals and higher quality ratings within the coverage set.
Context limitations: The reporting here reflects BofA's coverage and conclusions as summarized by the firm. Where the bank's metrics or screens are cited, those figures are presented as reported.