North American internet stocks weaken during earnings season: Earnings multiples fall, but revenue multiples remain above historical averages
In the week ended 23 October, North American internet stocks as a whole underperformed the broader market, with particularly sharp declines in digital advertising. Morgan Stanley’s valuation comparison shows that earnings multiples have fallen below historical averages, while revenue multiples remain high; stock-based compensation costs also change how valuations look.
Original source：Morgan StanleyFirst published on Unhidea：Original source date：
Key takeaway
The recent decline in North American internet stocks has compressed earnings multiples, but different valuation measures and stock-based compensation costs show that whether the sector is cheap still depends on the comparison used.
Which internet stocks fell more sharply during earnings season?
In the week ended 23 October 2026, the internet stocks tracked by Morgan Stanley fell 4.6% on a market-cap-weighted basis, while the Nasdaq fell 0.7% and the S&P 500 fell 0.5% over the same period.
The digital advertising sector fell 7.0% on a market-cap-weighted basis, with Meta down 9.4%, Alphabet down 6.0% and Reddit down 7.6%; the e-commerce sector’s weighted decline was 0.7%, and Amazon fell 0.8%.
The declines were not universal across the sector: Instacart rose 13.3% in the same week, while Uber and DoorDash each fell 5.2%.
Where do valuations stand after the decline?
Based on expected earnings per share for 2027, Amazon, Alphabet and Meta trade at price-to-earnings multiples of approximately 21 times, 21 times and 19 times, respectively, below their respective past-12-month averages by 18%, 14% and 2%.
For the sector as a whole, the forward 12-month ratio of enterprise value to earnings before interest, taxes, depreciation and amortization (EV/EBITDA) is 15% and 23% below its five- and ten-year averages, respectively; the enterprise-value-to-revenue ratio, however, is 7% and 8% above the averages for those same periods.
The two measures yield different comparisons: earnings multiples are low relative to history, while revenue multiples remain high, so both revenue and earnings need to be considered when assessing valuations.
How do stock-based compensation costs change the valuation comparison?
Morgan Stanley estimates that treating stock-based compensation as a cash cost raises the median 2026 EV/EBITDA multiple for the digital media sector by approximately 38%; the calculation excludes Snap.
Under the same treatment, the e-commerce sector’s multiple rises by approximately 26%; the median for the travel, shared economy and real estate technology group rises by approximately 51%, excluding Zillow.
This adjustment includes stock-based compensation in the cost comparison, making some companies’ earnings valuations look higher; the magnitude of the effect also differs markedly across sectors.
