Written by: Rita
Amazon and Meta's valuations remain below their respective two-year averages, while Alphabet has surpassed its own average. According to Morgan Stanley's report dated October 13, 2026, internet stocks overall rose last week, with significant pricing divergence among leading companies.
Stock-based compensation further impacts valuation comparisons. After Morgan Stanley treated this expense as a cash outlay, profit multiples for several internet subsectors rose significantly. In addition to revenue and profit growth, the cost of equity incentives also affects judgments about company valuations.
Internet stocks rose unevenly.
According to Morgan Stanley, last week, U.S. internet stocks, weighted by market capitalization, rose approximately 2%, outperforming the S&P 500, which gained about 1% during the same period, while the Nasdaq 100 remained largely flat. Amazon rose about 4%, Alphabet increased about 2%, and Meta declined about 1%. The sector as a whole strengthened, but performance among leading companies remained mixed.
Within the subsectors, e-commerce and the sharing economy performed strongly, with market-cap-weighted weekly gains of approximately 4.4% and 4.7%, respectively. The digital advertising and travel sectors rose by about 1.4% and 1.7%, respectively. These industries have different revenue streams and cost structures, and their stock prices did not move in unison—the sector-wide average gains mask some of these differences.
Some mid- and small-cap companies experienced higher gains. Among the weekly performance figures listed in the report, Instacart and Reddit each rose approximately 8%, Unity increased by about 7%, while Opendoor declined by around 9%. This data, current as of October 9, reflects weekly market movements and is insufficient to indicate improved profit expectations for the rising companies.
The valuations of leading projects have clearly diverged.
Amazon and Meta are both trading at an enterprise value-to-EBITDA (EV/EBITDA) ratio of approximately 11.0x over the next 12 months, while Alphabet is at approximately 14.8x. Morgan Stanley also lists each company’s average multiple over the past two years to compare current valuations against their historical levels. The absolute level of the multiple and the premium or discount relative to historical levels are two distinct comparisons.
Amazon's two-year average multiple is 12.6x, currently trading at a discount of approximately 13%; Meta's two-year average multiple is 12.2x, currently trading at a discount of approximately 10%. Alphabet's two-year average multiple is 14.2x, currently trading at a premium of approximately 4%. The first two companies still trade at a discount to their historical valuations, while Alphabet is priced above its own two-year average.
The P/E ratio comparison on the report's homepage uses different metrics. Based on expected EPS for 2026, Amazon, Alphabet, and Meta are approximately 20x, 17x, and 23x, respectively; compared to their respective 12-month averages, the first two are about 31% lower, while Meta is about 2% higher. Since P/E and EV/EBITDA use different profit metrics and forecast periods, the respective premiums and discounts should be evaluated separately.
Discrepancy between revenue and profit valuation
Based on the overall internet sample, Morgan Stanley estimates a future 12-month EV/EBITDA ratio of approximately 12.6x. The average ratios over the past five and ten years were 13.6x and 14.9x, respectively, indicating discounts of approximately 7% and 16% as noted in the report. Measured by this profitability metric, the sector is currently valued below both historical averages.
The enterprise value-to-sales ratio (EV/Sales) is higher than the historical average. The reported forward 12-month multiple is approximately 4.9x, compared to a five-year average of 4.2x and a ten-year average of 4.1x, representing respective premiums of about 17% and 18%. While the revenue multiple is above its historical average and the profit multiple is below it, neither metric alone can determine whether the entire sector is cheap or expensive.
The difference between the two metrics is related to profitability. For the same level of revenue, different profit margins result in different profits; changes in costs and expenses also alter the relationship between revenue multiples and profit multiples. A sector’s profit multiple being below its historical average does not mean all companies in the sector are undervalued—it also depends on whether each company’s profits can be realized.
Stock compensation increases profit multiples.
To compare the impact of equity incentives, Morgan Stanley treats stock-based compensation (SBC) as a cash expense and recalculates the expected EV/EBITDA for 2026. After adjustment, the median multiple increases are approximately 38% for digital media, 26% for e-commerce, 13% for video games, and 51% for travel, sharing economy, and proptech. The digital media sample excludes Snap; the video games sample excludes Roblox and Unity; and the combined sample for travel and other sectors excludes Zillow. These percentages reflect the median changes within each group’s sample and cannot be directly applied to individual stocks.
Large companies also showed significant adjustments. In the report’s charts, Alphabet’s multiple rose from 17.1x to 19.6x, Meta’s from 12.6x to 15.2x, and Amazon’s from 10.1x to 13.8x. After accounting for stock-based compensation as an expense, the profit available for valuation decreases while enterprise value remains unchanged, causing multiples to rise.
These figures cannot be directly used to recalculate the historical discount mentioned earlier. Stock-based compensation adjustments use projected profits for 2026, while the historical comparisons earlier rely on profits for the next 12 months. Morgan Stanley did not provide a consistent historical average after adjustment, so it is not possible to determine how much of the original discount for Amazon and Meta remains.
Equity incentives typically do not require companies to pay cash in the current period, but they may dilute the ownership stakes of existing shareholders. If a company repurchases shares to offset this dilution, it consumes cash. For internet companies that rely on equity incentives to retain employees, there remains a distinction between revenue growth, profit growth, and the ultimate returns to shareholders—stock-based compensation is one cost that cannot be omitted.
Disclaimer
This article is a compilation and interpretation by Chaoxiang Research of a third-party brokerage research report (Morgan Stanley, October 13, 2026), combined with publicly available market information. The ratings, price targets, earnings forecasts, and related judgments cited herein reflect the views of the brokerage’s analysts and represent the position of their respective institution only; they do not reflect the views of Chaoxiang Research nor constitute any investment advice.
The market carries risks; make decisions independently. This article should not be used as a basis for buying or selling any securities.