Tech

Google knocks out Amazon as Citi's top pick for US internet companies

Key Points
  • Citi rated Google parent company Alphabet as its top pick in its latest ranking of U.S. internet companies.
  • Amazon previously held the top spot but was downgraded due to slowing growth in certain areas.
  • Citi said Google's buybacks and high valuation make it an attractive stock.
Google CEO Sundar Pichai speaks on stage during the annual Google I/O developers conference in Mountain View, California, May 8, 2018.
Stephen Lam | Reuters

Google parent company Alphabet is now Citi's top pick for U.S. internet companies, knocking Amazon out of the top spot.

In a note published early Thursday morning, Citi gave Alphabet a buy rating and said it has moved to its No. 1 position because it has shown "[c]ontinued strong topline growth" specifically in mobile search and YouTube. Citi analysts also noted Alphabet's increased buybacks. Citi said the stock's valuation "more than offset continued margin pressures," and added that management has given signs they could improve.

Amazon dropped in the rankings due to slowing growth in areas including advertising and North America retail gross merchandise volume. Citi also said it fears the potential for disruptive factors including "India, NYC HQ, Bezos distractions, etc.," seemingly referring to new regulations in India that could impact Amazon's core business, local controversy over Amazon's new headquarters pick, and CEO Jeff Bezos' tabloid-leaked affair and subsequent alleged extortion by the publication. Amazon announced on Thursday it would no longer build a new headquarters in New York.

Citi said revenue and margins momentum were a key part of its rankings as well as "company-specific factors" it said could include valuation and business catalysts. Netflix and Facebook follow Alphabet on the list and also got buy ratings. Citi said Netflix's strong content lineup, particularly internationally, makes it a top pick. It said Facebook has "weathered the storm" and since shown growth in revenue and user metrics.

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