Top analyst Mark Mahaney of RBC Capital provides a Q1 earnings preview for internet giants Netflix, Inc. (NASDAQ:NFLX) and Yahoo! Inc. (NADAQ:YHOO), with a differing opinion on each. The analyst describes how various first quarter events from each company influence his metrics estimates for the quarter.

According to TipRanks, Mark Mahaney is ranked #7 out of 3,878 analysts. He has a 63% success rate recommending stocks with an average return of 18.8% per recommendation. Mark Mahaney Stats

Netflix, Inc.

Netflix will release Q1:16 earnings today, April 18, after market close. Mahaney is expecting Q1 revenues of $1.96 billion and GAAP EPS of $0.03, compared to $1.57 billion and $0.05, respectively, from the same quarter of last year.

The analyst describes his main takeaways from the company’s first quarter. First, the analyst notes that U.S. unique visitors grew 18% y/y compared to last quarter’s 3% y/y growth. According to his firm’s U.S. survey, the company is “winning the market” with “record usage levels” of 53% compared to competitors YouTube and Amazon. The survey also boats an impressive 70% satisfaction rate with “record low churn” levels, as 52% of participants are “not at all likely” to cancel their subscription. Although U.S. metrics are positive, survey results from the company’s Japanese market indicate that “Japan may be tougher for paid Streaming services, with 57% ‘Not at all likely’ to pay for Streaming content.” Finally, the company reported a full cloud transfer of its services, increasing monthly streaming hours by 1,000x since December of 2007.

For this earnings report, Mahaney expects the company to post 1.75 million domestic streaming subscriber additions and 4.35 million international streaming subscriber additions, with slight DVD subscriber losses. The analyst also expects an increase in domestic streaming contribution profit and a loss of $114 million in international contribution due to “substantial international market launch costs.”

Mahaney reiterates an Outperform rating and $140 price target on the stock. Overall, the analyst sings Netflix’s praises, noting the company has “has achieved a level of sustainable scale, growth, and profitability that isn’t currently reflected in its stock price.” He views Netflix as “one of the largest global Entertainment subscription businesses,” noting impressive growth in device related views. Mahaney predicts growth going forward contingent on continued international expansion and more original content.

According to TipRanks, Out of all the analysts who have rated the company in the past 3 months, 55% gave a Buy rating, 11% gave a Sell rating, and 34% remain neutral. The average 12-month price target for the stock is $122.89, marking a 10% upside from where shares last closed.

Yahoo! Inc.

Yahoo is set to release its Q1:16 earnings report tomorrow, April 19 after market close. Mahaney expects revenue for the quarter of $846 million and non-GAAP EPS of $0.07, compared to revenues of $1.23 billion and earnings of $0.15 per share from the same quarter of last year.

For the earnings report, the analyst will be watching for search metrics, as he believes search revenue will decline 19% Y/Y. He notes that last quarter, “Paid Clicks declined 10% Y/Y while PPC grew 3% Y/Y.” Consequently, the analyst “[anticipates] similar results in Q1.” Mahaney also expects a Y/Y decline in Display revenue of 4%, though believes Ads Sold and Price-Per-Ad will display 8% and 6% growth Y/Y, respectively. The analyst specifically highlights Mavens growth, noting that the segment’s 26% Y/Y growth in Q4 translated to “39% of traffic-driven revenue” for the quarter. According to Mahaney, this segment is critical for the company going forward. He explains, “We will be looking closely at the performance of the Mavens segment to determine if YHOO can offset the declines seen in its traditional advertising segments.”

Mahaney notes that the company’s U.S. Desktop Search queries decreased Q/Q. As a result, the analyst states, “It seems that Yahoo!’s share has been declining since its peak of 12.8% in Q1:15.” Similarly, U.S. unique visitors to the site also declined Q/Q. Regarding the board, Mahaney described that 2 board members resigned this quarter, leading to the appointment of two new board directors from Morgan Stanley and Broadcom. The analyst also mentions the board’s February 19 announcement of “strategic alternatives” other than a reverse spin “to help Yahoo separate from its Alibaba stake” and named potential “interested strategic and financial partners” such as Verizon, Comcast, and others.

The analyst reiterates a Sector Perform rating with a $33 price target for several reasons. He describes how management is “implementing changes and a new strategic plan” to help offset recent declines, focusing on “growing user engagement, driving Mavens revenue growth, simplifying the business and aligning resources efficiently.” While he acknowledges turnaround efforts, the analyst believes such efforts will “take multiple years to show meaningful results.”

According to TipRanks, out of all the analysts who have rated Yahoo in the last 3 months, 44% gave a Buy rating, 4% gave a Sell rating, and 52% remain on the sidelines. The average 12-month price target for the stock is $38, marking a 4% upside from where shares last closed.