If Amazon.com, Inc. (NASDAQ:AMZN) has a miss on its hands come first quarter earnings release, is there enough long-term advantage to still be all bets in? Piper Jaffray sure thinks so. However, when it comes to Twitter Inc (NYSE:TWTR), Wedbush gambles gingerly, suggesting to hedge bets as long as user growth and ad revenue stay on the sluggish side. Let’s dive in and see what to expect for the first quarterly print of the year for these two tech players:
Amazon Gets a Short-Term Pass (For Now) on Any Misses
Piper Jaffray analyst Michael Olson is setting some mixed expectations for Amazon ahead of its first quarter print for 2017 due next Thursday, but at the end of the day, he is long-term bullish on this online auction and e-commerce giant.
As such, the analyst reiterates an Overweight rating on shares of AMZN with a $1,000 price target, which represents an 11% increase from where the stock is currently trading.
In a preview of the print, the analyst says to look for robust retail revenue, but be wary of a prospective “slight miss” on a “weak” Amazon Web Services (AWS) segment. Additionally, as many investors should be anticipating, second-quarter margin outlook could very well fall under consensus. Considering the analyst deems consensus expectations a tad “aggressive” and overblown without taking under account AWS price cuts, he will not be surprised should the guide underwhelm.
For the first quarter, Olson projects unit growth to hit around 23%, 1% below last quarter’s results. Subsequently, the analyst estimates retail revenue growth between 22% to 23%, mirroring to just ahead of Street expectations of 22% for year-over-year growth.
“[…] as investors are already well aware of Street mis-modeling of margins and the nature of Amazon’s expenses, we believe the company will receive one more pass on margins. This will not likely be true when Amazon guides Q3’17 in July, as the company should see margin expansion in 2H’17 as they comp significantly increased investment spend in Q3’16. In other words, the lack of 2H margin expansion would lead some investors to believe we are at the start of a multi-year margin compression trajectory,” continues the analyst.
Ultimately, “We believe long-term investors should own AMZN through Q1’17 earnings; we do not anticipate meaningful revenue or profitability upside in the Q2’17 guide and, instead, we believe investors are braced for a below consensus guide for Q2 GAAP operating margins. We remain LT bulls on AMZN,” Olson contends.
As usual, we like to include the analyst’s track record when reporting on new analyst notes to give a perspective on the effect it has on stock performance. According to TipRanks, five-star analyst Michael Olson is ranked #107 out 4,562 analysts. Olson has a 66% success rate and realizes 13.9% in his annual returns. When recommending AMZN, Olson yields 10.1% in average profits on the stock.
TipRanks analytics show AMZN as a Strong Buy. Out of 33 analysts polled by TipRanks in the last 3 months, 32 are bullish on Amazon stock while 1 remains sidelined. With a return potential of 9%, the stock’s consensus target price stands at $980.87.
Twitter’s User Growth and Ad Revenue Challenges Negate Better Engagement
Twitter is readying to report first quarter earnings for the year this coming Wednesday and Wedbush analyst Michael Pachter is surveying the social media platform from on the fence. Anticipating results to waver between “stalling user growth and ad revenue” and “engagement gains,” the analyst reiterates a Neutral rating on TWTR with a price target of $13, which represents a close to 11% downside from where the shares last closed.
For the first quarter, the analyst notes he is “anticipating minimal user growth, consistent with recent quarters, with engagement likely benefitting from political discourse, March Madness, and live video.” Pachter looks for $534 million in revenue, $98 million in adjusted EBITDA, and $(0.02) in non-GAAP EPS, compared to consensus expectations of $512 million in revenue, $94 million in adjusted EBITDA, and $0.01 in non-GAAP EPS. Additionally, the analyst projects implied revenue guidance between $429 and $559 million and for adjusted EBITDA between $75 to $95 million. Watch out for a revenue dip, says Pachter, who warns of a 10% year-over-year pullback on back of multiple ad products resulting in continued weakness. On a positive note, there should be growth in Twitter’s video segment- but the analyst does not expect this to be enough to accelerate MAU growth.
Twitter’s valuation remains “a steep discount to the company’s primary internet peers” for Pachter, who opines, “We believe the multiple is justified given the meaningfully lower ROI proposition for advertisers, and significantly higher stock based compensation relative to revenue when compared to peers. We do not see a logical buyer for Twitter.”
“Twitter remains ‘the place to go’ for real-time information, and although management is clearly focused on profitability, improvements in user experience and costs remain limiting factors. Twitter’s move into live streaming events is one way the platform can improve engagement, while user growth is likely to be very slow given the complex user experience. The ubiquitous presence of Tweets across news headlines further dilutes the need for new users to actually join the site, while digital ad budgets remain concentrated among larger peers,” Pachter surmises, sidelined on Twitter’s prospects moving forward.
According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, one-star analyst Michael Pachter is ranked #4,033 out of 4,562 analysts. Pachter has a 51% success rate and faces a loss of 2.1% in his yearly returns. When recommending TWTR, Pachter earns 0.0% in average profits on the stock.
Tipranks analytics show TWTR as a Hold. Based on 28 analysts polled by TipRanks in the last 3 months, 4 rate a Buy on Twitter stock, 14 maintain a Hold, while 10 issue a Sell. The 12-month average price target stands at $15.00, marking a 3% upside from where the stock is currently trading.