Tech stocks are having a banner year, up more than 12% so far since the start of 2016,so it may seem a difficult task to find companies in the sector that can soar further still. To help in the task, and particularly because tech stocks can experience such volatility, too, we've asked our team of Motley Fool contributors to come up with their best selections for the coming year. Continue reading to find out why Facebook (NASDAQ:FB), TripAdvisor (NASDAQ:TRIP), and Activision Blizzard (NASDAQ:ATVI) are poised to climb higher in 2017.
Facing the future
Rich Duprey (Facebook): With a market cap approaching $350 billion, Facebook is among the most valuable tech companies around. It's also one of the biggest global brands in 2016 as well, with the brand consultants at Interbrands ranking it 15th, behind such stalwarts as Apple, Google, and Microsoft, and up eight places from the year before.
That's a pretty dramatic showing for a company that just 12 years ago was a fun tool to play with in Mark Zuckerberg's dorm room. Over the last three years, Facebook's stock has surged fivefold in value, and a strong run-up this year that saw shares jump more than 25% is showing weakness as 2016 ends, giving back 10% of its gains.
There's no reason to believe Facebook won't soon be soaring even higher once more, and now ought to be the time to stirke before it runs away over the next 12 months.
With acquisitions like Instagram, WhatsApp, and Oculus VR, Zuckerberg is positioning Facebook for the future of social media and beyond, but it's tending to the existing platform as well; the company just announced a new Instant Game feature that will reside on both Facebook itself and in its messaging app. It also announced a new storefront called Gameroom that will appear on Windows PCs. Melding gaming with social media may take the two beyond the initial success seen by such early forays like FarmVille.
For example, this past summer Facebook began allowing users to live-stream their gameplay online, which YouTube has similarly started allowing on its channels, and indication of where this niche is heading and why video will become even more important to the social media platform. It's proving that social media, but especially Facebook, is becoming very much a visual medium.
While the advances the platform has made are exciting, there have been a few notable hiccups. There always seem to be privacy concerns surrounding Facebook, such as using personal WhatsApp data for advertising purposes as well as creating software to allow China to censor content, which drew sharp rebukes from critics. Still, they don't seem likely to stall its progress and the social media leader appears poised to strongly advance across all of 2017.
Are we at the turning point?
Brian Feroldi (TripAdvisor): The past few years have not been kind to investors in TripAdvisor. Shares of the travel review site have shed more than half of their value since mid-2014 over fears that this company's days of fast growth are a thing of the past.
It is not hard to understand why many on Wall Street have adopted that sentiment. While the company's sites continue to grow in popularity -- TripAdvisor attracted 390 million unique visitors in the third quarter, up 11% over the year-ago period -- its headline numbers look quite weak. Last quarter, revenue grew by just 1% and net income was flat. Those are not numbers that will get growth investors excited.
Why the disconnect? Management has been investing heavily in its "instant booking" platform, which lets users book their trip without leaving the company's site. While this brings TripAdvisor one step closer to its customers, it delays the company's ability to recognize revenue. In addition, more customers are visiting its sites on mobile devices, which monetize at a much lower rate than desktop users. Taken together, it is no surprise to see that the company's headline numbers have been weak.
Looking ahead, management continues to be bullish on the long-term potential of its instant booking platform, and they also believe that mobile devices will eventually monetize at higher rates than we are seeing today. If true, then TripAdvisor could be well positioned for double-digit revenue and profit growth from here. That suggests that the sentiment on TripAdvisor could be poised to turn, meaning that shares could finally start to head in the right direction from here.
Multiple growth opportunities
Keith Noonan (Activision Blizzard): Soft demand for Call of Duty: Infintie Warfare and a lower-than-expected full-year revenue target have recently depressed Activision Blizzard's valuation, but sell-offs could present an opportunity for long-term investors. The stock is down roughly 15% over the last three months, bringing the video game publisher's forward P/E ratio to roughly 17.5 and creating big upside potential over the next twelve months and beyond.
Call of Duty is one of the company's most important franchises, and underperformance for the recent entry in the first-person-shooter genre does stand as a notable disappointment, but the company has enough strong properties to drive growth even if one of its core game series is showing signs of decline. Infinite Warfare is lagging expectations, but Activision Blizzard's recent genre entry Overwatch has landed as a phenomenal success and illustrates the publisher's pension for creating new hits while also suggesting that the company isn't losing strength in the shooter category. Overwatch stands out as the year's biggest new game franchise, surpassing 20 million players less than five months after release, recently winning "Game of the Year" honors at The Game Awards, and functioning as a linchpin of the company's push into esports. Call of Duty sales will also likely bounce back if next year's release is a follow-up to one of the franchise's more popular sub-series.
Taking a broader vantage, the company continues to benefit from a transition to high-margin digital sales, and has growth opportunities in esports, mobile, and virtual reality that could drive stock performance over the next year. Consolidation might also send the stock soaring and appears to be in the pipeline, with CEO Bobby Kotick's recent contract extension including a provision that will reward the executive with substantial equity compensation if Activision's market cap increases at least 15% through acquisitions.
Brian Feroldi owns shares of Activision Blizzard, Apple, Facebook, and TripAdvisor. Keith Noonan owns shares of Activision Blizzard. Rich Duprey has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Activision Blizzard, Apple, Facebook, and TripAdvisor. The Motley Fool owns shares of Microsoft and has the following options: long January 2018 $90 calls on Apple, short January 2018 $95 calls on Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.