RBC Capital’s Mark Mahaney Believes ‘The Internet Remains Great’: Amazon.com, Inc. (AMZN), Facebook Inc (FB), Snap Inc (SNAP)


Top analyst Mark Mahaney at RBC Capital is out with bullish forecasts on three of the technology-verse’s leading giants: Amazon.com, Inc. (NASDAQ:AMZN), Facebook Inc (NASDAQ:FB), and Snap Inc (NYSE:SNAP). With a glowing earnings preview for Amazon’s robust gross margin trends and perpetually stellar execution, Facebook’s skyrocketing user growth quarter-after-quarter-after-quarter, and Snap’s savvy innovative flourishes that have landed the company as the gem of the Millenial court, let’s explore why one of the best analysts on the Street is rooting for these darlings of the Internet (To watch Mahaney’s track record click here):

Amazon Remains Best Play Off Three of Tech’s Leading Trends

Amazon is anticipated to release second-quarter earnings for the year by the end of July. With forward momentum of year-to-year gross margin growth that has helped Amazon to outclass the S&P mid-quarter, deeming positive trends of expansion as “one of the most important fundamental factors for the stock’s outperformance,” Mahaney is betting on the online auction and e-commerce leader ahead of the print. As such, the analyst reiterates a Buy rating on shares of AMZN with a $1,100 price target.

For the first second quarter of 2017, the analyst is angling for Amazon to bring in $36.6 billion in revenue, $1,085MM in GAAP operating income, and $1.34 in GAAP EPS. Though the analyst’s revenue expectations rest under consensus, they still reach ahead of the mid-point of AMZN management’s outlook, with the analyst’s operating income forecast more bullish than both consensus as well as the top-line of outlook. Mahaney’s GAAP EPS projection of $1.34 hits under consensus of $1.42. Finding the Street’s expectations “reasonable,” noting there is “equal chance of Revenue upside vs. downside and slightly greater room for EPS upside,” the analyst adds that looking ahead, “Street September quarter estimates seem bracketable, though not beatable.”

“We believe the big picture remains clear,” concludes Mahaney, condensing his bullish case for the company into five key crucial elements: “1) Amazon’s 2 key endmarkets (Retail & Cloud Computing) are still only ~10% penetrated; 2) competitive moats around AMZN are deepening; 3) Amazon’s execution has been consistently excellent; 4) AMZN remains arguably the single best play off three of the biggest Tech trends today – Cloud, AI & VAI (Voice Activated Internet); and 5) Amazon is searching hard for its fourth major growth pillar (Prime, Marketplace & AWS being the first three)…we have thought for some time now that Grocery is a prime candidate…”

TipRanks analytics exhibit AMZN as a Strong Buy. Out of 29 analysts polled by TipRanks in the last 3 months, 26 are bullish on Amazon stock while 3 remain sidelined. With a return potential of nearly 15%, the stock’s consensus target price stands at $1,125.38.

Facebook: Top Large Cap Long Pick

Facebook’s “unprecedented” monthly active user growth and 16 consecutive quarters illustrating beyond 50% in year-over-year ad revenue growth not only “speaks volumes” of the compelling value this titan presents to advertisers and consumers alike, but has Mahaney singing the social media platform’s praises ahead of its second quarter earnings release expected July 26th following the bell. Therefore, the analyst reiterates a Buy rating on FB with a price target of $185, which represents a 22% increase from where the shares last closed.

For the second quarter of 2017, the analyst calls for CEO Mark Zuckerberg’s brainchild to showcase $9.30 billion in revenue, $5.69 billion in adjusted EBITDA, and $1.16 in GAAP EPS, more confident than consensus expectations calling for $9.20 billion in revenue, $5.65 billion in adjusted EBITDA, and $1.11 in EPS. Notably, the analyst’s forecasts indicate 45% of a year-year (ex-FX) rise in revenue with GAAP EPS on a 64% year-over-year escalation of growth. While second quarter projections from the Street come across to Mahaney as “ballpark reasonable,” he notes variance is more probable up the ladder rather than downwards. When glancing at 2017 guidance, the analyst forecasts Facebook will maintain its GAAP operating expenses growth outlook in the range of 40% to 50%.

While the analyst had been predicting year-over-year monthly active user (MAU) growth of 14% to reach 1.96 billion, after the titan had revealed it hit 2 billion in users at the end of last month, he now finds his expectations “low” – especially considering the titan has kept up its 17% year-over-year- MAU stride going for 3 back-to-back quarters coupled with 13% to 17% of a climb for 15 consecutive quarters. With various key, substantial revenue growth drivers under Facebook’s belt between monetization prospects from Instagram to Video all while boasting the best growth-adjusted valuation in the tech sector, the analyst is confident as ever, asserting, “Facebook has continued to grow users at an impressively robust pace off a very large base.”

“FB is our #1 Long recommendation in the Large Cap ‘Net sector,” cheers Mahaney, surmising, “Core FB is growing extremely well, with almost unprecedented Ad Revenue growth consistency – 16 straight quarters of 50% organic Ad Revenue growth. More important, we believe that’s FB’s current low market shares – 15% of Global Online Advertising & 5% of Global Total Advertising – will help it maintain premium growth for a long time. And FB still has several new large revenue growth drivers (Instagram monetization, Messaging Platform monetization, AR/VR, etc…). On valuation, we view approximately 21x P/E on our ‘18 GAAP EPS as highly attractive, especially for 30%+ EPS growth. On a growth-adjusted basis, we view FB shares as the most attractively valued of any of the Large Cap Nets.”

TipRanks analytics show FB as a Strong Buy. Based on 32 analysts polled by TipRanks in the last 3 months, 29 rate a Buy on Facebook stock while 3 maintain a Hold. The 12-month average price target stands at $170.90, marking a nearly 13% upside from where the stock is currently trading.

Snap: A Story of “Beta King” Meets Innovation Leader

Snap is rumored to post its second quarter financial results August 9th, and from where Mahaney is standing, if the popular Snapchat app parent company continues to leverage its innovative prowess and maintain its growth over the long run, the ball remains in this tech player’s court. Bullish on Snap’s prospects approaching the print, the analyst reiterates a Buy rating on shares of SNAP with a $31 price target, which represents a close to 82% increase from current levels.

For the second quarter of 2017, the analyst aims for Snap to put forth $206MM in total revenue coupled with ($196MM) in adjusted EBITDA, riding over the Street’s revenue projection of $194MM but under the Street’s adjusted EBITDA forecast of ($182MM). Moreover, the analyst calls for Daily Active User adds of 7MM, less bullish than the Street’s expectations of 10MM, translating to a second-quarter projection of 173MM and $1.19 in ARPU.

Mahaney notes, “Based on intra-quarter data points, our proprietary survey work, and our model sensitivity analysis, we believe Street top-line Revenue estimates for Q2 are ballpark reasonable, though we think the Street’s Adjusted EBITDA estimate and its 10MM DAU net add estimate may be aggressive.”

In the grand scheme, “SNAP will be the ‘Beta King’ for some time,” contends Mahaney, opining, “But that doesn’t obviate the reality that Snap has become an innovation leader – for both consumers & advertisers – in the single fastest advertising medium today – Mobile. It has also emerged as one of the leading Media Platforms for Millennials. We believe that if it sustains its current level of innovation (just look at the recently released Snap Map product), it can sustain premium growth for a long time and scale to profitability. We see the company’s current limited DAU base (166MM or ~1/8th the size of FB) and its current low ARPU ($0.90 or ~1/7th that of FB) as creating substantial growth opportunities.”

TipRanks analytics indicate SNAP as a Buy. Out of 29 analysts polled by TipRanks in the last 3 months, 12 are bullish on Snap stock, 13 remain sidelined, and 4 are bearish on the stock. With a return potential of 27%, the stock’s consensus target price stands at $21.84.