Top analyst Youssef Squali at Cantor joins the earnings season chatter with his perspective on three of the internet’s giants: Twitter Inc (NYSE:TWTR), Amazon.com, Inc. (NASDAQ:AMZN), and Alphabet Inc (NASDAQ:GOOGL). Why does Squali express subdued expectations from the sidelines for Twitter, but see booming growth ahead for Amazon and Alphabet? Let’s take a closer look:
Cantor top analyst Youssef Squali has a very good TipRanks score with a 71% success score and he stands at #5 out of 4,190 on the analyst leaderboard. Squali garners 14.0% in his annual returns. However, when recommending TWTR, Squali loses 14.6% in average profits on the stock. When suggesting AMZN, Squali realizes 32.4%. When rating GOOGL, Squali yields 13.8%.
As Twitter has been experiencing a downturn in monetization and “anemic” new monthly active users (MAUs), Squali does not have high expectations heading into what he believes likely will be “muted” quarterly results come October 27th.
All indications for Squali point to an “underwhelming” print and “potential downside to 3Q user growth” waiting for the social networking giant. Though monetization was once robust at the start of 2016, Squali observed the beginning of cracks starting to appear during the second quarter, and now fully anticipates “more pressure” in the third quarter. Meanwhile, ever since August, unique visitors have been on a downward spiral through September, “marking the first Y/Y declines we’ve seen in comScore’s multi-platform data,” Squali observes.
Therefore, the analyst reiterates a Hold rating on shares of TWTR with an $18 price target, which mirrors where the shares last closed.
For the third quarter, the analyst anticipates TWTR will reach 316 million users, which denotes 3 million net adds. Additionally, Squali projects a 6.2% year-over-year rise in revenue to $604.7 million, just above FactSet’s $604.0 million estimate and in guidance range of $590 to $610 million. The analyst estimates TWTR will post EBITDA of $157.0 million, significantly ahead of consensus of $149.7 million and guidance of $135 to $150 million. Squali expects guidance will “likely” be “in line” with the Street, with consensus estimating revenue of $748.6 million and EBITDA of $192.5 million for the fourth quarter.
“We expect the new strategy around live streaming of sports, entertainment and political content to yield little in terms of P&L in 3Q, but 4Q guidance and FY17 qualitative commentary could prove positive for the stock. We view Twitter as a viable, global and differentiated platform, hit by execution issues. If mgt. is unable to reverse the sagging growth trends within the next couple of quarters, chances of a take-out increase materially, in our view,” Squali surmises.
As the analyst assesses the situation, “traction” with the NFL’s Thursday Night Football live-streaming games will be “crucial” to the “success” of TWTR’s new content strategy.
TipRanks analytics exhibit TWTR as a Hold. Based on 33 analysts polled in the last 3 months, 5 rate a Buy on TWTR, 21 maintain a Hold, while 7 issue a Sell. The 12-month price target stands at $17.34, marking a nearly 4% downside from where the stock is currently trading.
So far, all third-quarter channel checks look “positive” for Amazon ahead of the October 27th report, considering “U.S. e-commerce saw strong growth” and climbed 16% year-over-year in the third quarter. Notably, Squali is looking for “robust top-line growth” as he maintains a bullish forecast for the online auction and e-commerce leader.
The analyst believes prospects are solid for core retail to continue its stellar performance across the U.S. and internationally, and he expects “sustained momentum” for Amazon Web Services (AWS). Meanwhile, Squali notes that the success of Prime Day is “likely to boost growth” for the quarter, with orders during the 2016 event up over 60% world-wide and over 50% in the U.S.
For the third quarter, Squali expects revenues to fall “in line” with the Street’s estimate of $32.66 billion, which indicates an over 29% year-over-year surge in revenue, and $0.78 in EPS. Squali himself is projecting $32.49 billion in revenue and $0.58 in EPS. Guidance is out for $31.0 to $33.5 billion in revenue. Additionally, Squali anticipates gross margin of 35.3%, “reflecting a higher mix of AWS, 3P and digital.”
Moreover, the analyst asserts, “We expect F/X to result in a revenue tailwind of ~$85M and ~$0.01 positive impact on EPS. On a Y/Y basis, F/X should result in a 45bp contribution to top-line growth, relatively in line with mgt’s assumption for a 30bp tailwind.”
As for fourth-quarter outlook, Squali believes this also will “likely” be “in line with consensus,” which currently calls for $44.56 billion in revenue and $1.7 billion in operating income.
“We expect solid 3Q results out of Amazon on 10/27, with ~29%+ Y/Y reported revenue growth, driven by its growing share of retail, robust 3P and AWS businesses. Our checks show healthy double-digit pace of growth in ecommerce and we view Amazon as one of the prime beneficiaries of such a trend,” Squali contends.
Overall, Squali sees full bullish steam ahead for the company and reiterates a Buy rating on AMZN with a price target of $1,000, which represents just under a 19% increase from where the stock is currently trading.
TipRanks analytics demonstrate AMZN as a Strong Buy. Based on 34 analysts polled in the last 3 months, 33 rate a Buy on AMZN, while 1 maintains a Hold. The consensus price target stands at $936.82, marking a nearly 12% upside from where the stock is currently trading.
Alphabet is set to deliver its third-quarter earnings on October 27th and Squali likes the Google-parent company’s odds for “solid” results, as all checks have revealed “sustained strength” awaits. As such, the analyst reiterates a Buy rating on shares of GOOGL with a $1,000 price target, which represents a 19% increase from current levels.
Comparatively with the Street, Squali finds himself “in line” with estimates, projecting third-quarter net revenue of $17,984.5 million and EBITDA of $8,975.3 million. FactSet consensus calls for $17,982.8 million in net revenue and $8,953.8 million in EBITDA. Additionally, Squali’s estimates model for “solid” 19.0% in year-over-year growth for net revenue and 21.5% for EBITDA, “implying that Search is far from mature and that Alphabet continues to gain share in the digital ad market.” The analyst forecasts NEPS of $8.32, under the Street’s estimate of $8.63.
Though the analyst anticipates “slight” foreign exchange (F/X) tailwinds for both third and fourth quarter, he believes the company’s hedging program has the chance to “offset much of this impact.”
Furthermore, Squali notes that consensus projections for fourth quarter calling for net revenue of $20,225.1 million and EBITDA of $9,899.7 million “imply healthy growth still.” From the analyst’s perspective, Google Web Sites remain Alphabet’s fundamental driver of growth.
Squali believes, “Search and Display on O&O sites in the U.S., mobile, PLAs, programmatic and video should be major revenue drivers,” referencing that a recent survey from Kenshoo revealed Google signifies 68% of spend on Search, and 62% of the total companies polled have intentions to raise their search budgets for the upcoming holiday season. “Interestingly” to the analyst, 90% of companies expressed prioritized importance on search keywords in the context of this year’s holiday marketing, “boosted” by expanded text ads coupled with product listing ads (PLAs). Meanwhile, Alphabet’s fourth ad link introduced to desktop last February should also be beneficial.
“Results should be in line with Street estimates, in our view, showing healthy growth in both the top and bottom lines, and setting the stage for a robust 4Q. Intra-quarter checks suggest that Search and O&O Display did well, with sustained momentum from mobile, programmatic and video. Last week’s Paypal results, showing accelerating growth in online commerce/payments bode well for GOOGL, in our view. Management is likely to highlight AI, VR and hardware, all growing areas of focus and investment,” Squali concludes.
TipRanks analytics indicate GOOGL as a Strong Buy. Based on 31 analysts polled in the last 3 months, 30 rate a Buy on GOOGL, while 1 issues a Sell. The 12-month price target stands at $949.81, marking a nearly 14% upside from where the shares last closed.