Facebook Inc (FB), Amazon.com, Inc. (AMZN), and Snap Inc (SNAP) Get Ready to Rumble with 4Q Results; Mark Mahaney Shares 2 Cents

FB looks set to beat consensus unlike AMZN and SNAP says RBC Capital's Mark Mahaney


Top RBC Capital analyst Mark Mahaney has just released a report outlining his projections for the upcoming fourth quarter earning results for large cap internet stocks. Here we focus on three of the most interesting stocks from that report namely Facebook Inc (NASDAQ:FB), Amazon.com, Inc. (NASDAQ:AMZN) and Snap Inc (NASDAQ:SNAP). Out of these three stocks, Mahaney claims that FB has the least risk going into the print, while SNAP has the most.

We can see from TipRanks that Mahaney is a top analyst to track. Indeed, out of 4,700 analysts he is ranked #34 based on his 69% success rate and 22.3% average return. Let’s now take a closer look at his take on these three key stocks:

Facebook will report its Q4 results on January 31.

For Q4:17, Mahaney is expecting Revenue, Adjusted EBITDA, and GAAP EPS of $12.65B, $8.73B, and $2.02, respectively. These figures come in some way ahead of consensus which currently stands at $12.51B, $8.48B, and $1.93. To truly appreciate how quickly FB has grown in the last year, note that RBC Capital’s estimates imply 42% year over year revenue growth and even greater GAAP EPS growth from this time last year of 66%. Mahaney is also looking for FY18 Opex Growth guidance to stay at 45% to 60%.

“Based on intra-quarter data points, channel checks, and our model sensitivity work, we view current Street December quarter estimates as reasonable, with upwards variance modestly more likely than downwards variance” explains Mahaney. He will be keeping an eye out for the following key data points: user growth and engagement; ad revenue growth and margin levels. “Facebook has continued to grow users at an impressively robust pace off a very large base. In Q4:17, we are estimating Y/Y MAU growth of 14% to 2.12B” writes Mahaney.

And the firm’s recent survey supports his bullish take on the stock. RBC Capital has just carried out its third US social media survey of nearly 5,000 internet users of all different ages. The results are very interesting. While core Facebook had the best overall penetration rate and current usage among the Social Media networks, the survey also found a “slightly (more) negative bias towards expected time spent on the platform.” Plus the firm “continues to wonder whether core Facebook (not Instagram) has reached “peak” penetration in the U.S.” Nonetheless, the overall picture for Facebook remains impressive in respect of both its scale, usage and the popularity of its fast-growing photo sharing app Instagram.

Indeed, for Mahaney, FB is his number 1 Top Large Cap Long for 2018. He says the stock’s current low market shares – approximately 15% of Global Online Advertising– will help it maintain premium growth for a long time. Add in the fact that FB also offers one of the sector’s most attractive growth-adjusted valuation at 25X P/E for 30%+ EPS growth and it’s easy to see why Mahaney is such a fan.

Consequently, Mahaney reiterated his Buy rating on FB with a $230 price target (28% upside). The Street in general has a very bullish outlook on Facebook stock. TipRanks reveals that FB has a ‘Strong Buy’ analyst consensus rating. Indeed, in the last three months the stock has received 28 buy ratings vs just 1 sell rating. The average analyst price target of these analysts of $218 translates into relatively big upside potential from the current share price of over 21%.

Amazon is expected to report Q4 results in late-January

For the quarter, Mahaney is looking for $59.6B Revenue, $1.5B in GAAP operating income and $1.67 in GAAP EPS. Intriguingly, while Revenue and Operating Income estimates are in-line with consensus, the GAAP EPS estimate of $1.67 undercuts the consensus of $1.89. “Amazon ypically does not print revenue above its guidance or Street in the fourth quarter. In fact, it has not delivered a Q4 revenue beat since Q4:09” notes Mahaney.

In terms of Q1 estimates he considers the Street’s assumption of a 3% Q/Q GAAP Operating Profit decline “a tad aggressive”, given AMZN’s current investment cycle and typical seasonal opex patterns. At the same time, Mahaney adds that “lowered U.S. corporate tax rates, positive FX tailwinds, and what could be a not immaterial boost to reported revenue from the adoption of ASC 606 (impacting AMZN’s Advertising Revenue) should lend a boost to ’18 estimates.”

Ultimately, Mahaney is very optimistic on ‘internet staple’ Amazon. “AMZN’s Growth Outlook is arguably the strongest of the Major ‘Net Platforms, because it faces the Largest (and Least Penetrated) Total Addressable Markets – $20T Retail (10%) and $1T Cloud (10%)…along with $1T Advertising (30%), $5T Business Supplies (10%)…and maybe others…” Plus, he is now more impressed than ever with the traction of Amazon’s Alexa device and their potential long-term impact on AMZN. Indeed, Mahaney sees Alexa as capable of generating a massive $10-11B in revenue by 2020.

Like Facebook, Amazon has a ‘Strong Buy’ analyst consensus rating. In fact, in the last three months, the stock has received no less than 33 buy ratings and just 1 hold rating. However, the average analyst price target of $1,346 only suggests marginal upside of 3.15% from the current share price. Mahaney himself has one of the lowest price targets on AMZN right now of $1,200 (8% downside) from shares now trading at $1,305.

Snap is set to report its results for Q4 on February 6

Mahaney is anticipating $236MM in total revenue and ($177MM) in Adjusted EBITDA. This is below the Street’s Revenue estimate of $256MM, though marginally better than the Street’s Adjusted EBITDA estimate of ($187MM). He is also looking for Daily Active User additions of 4MM which also falls below the Street’s projection of 6MM. Going forward, Mahaney takes a subdued tone, saying “We also believe there is a greater likelihood of downward than upward estimates revisions post-the Q – especially given the Street’s accelerating 60% revenue growth outlook for ’18.”

Unsurprisingly, the firm’s survey reveals that Snapchat remains the least penetrated Social Media network in the US (out of FB, Instagram and Twitter). However, there are some very bright glimmers of light to bear in mind. First SNAP tied for highest Satisfaction Levels with Instagram. And secondly, Snapchat boasted the highest tested level of usage growth, though Instagram was a very close second. Now the company is in the process of rolling out a new version of the app which separates social and media, but it is too early to assess the impact of the new design.

Mahaney concludes that “SNAP is a very interesting asset with great product innovation.” However, three outstanding issues are limited visibility going forward (even by management); no big inflection in daily user growth; and uncertain engagement metrics. These issues will take time to resolve says Mahaney and as a result he reiterates his hold rating with a $15 price target (6% upside potential).

Overall, the Street has a cautious take on SNAP stock. Its Hold consensus rating on TipRanks is based on the 5 buy, 12 hold and 8 sell ratings the stock has received over the last three months. With the stock currently trading at $14.11, the average analyst price target of $13.93 stands at a downside of 1.28% from the current share price.