So far earnings have been a rocky road. On the one hand you have Microsoft, Netflix and Tesla smashing estimates, while on the other Alphabet and Amazon pulled back following more mixed results. Amazon, for example, implied that its fourth-quarter profit could be far lower than Wall Street was predicting. Meanwhile growth in Google’s ad business slowed 2 percentage points more than expected at 21% vs 23%. With plenty of tech stock earnings still lined up ahead, we turned to TipRanks to get the lowdown on two ‘Strong Buy’ stocks going into the print: Facebook (FB) and Dropbox (DBX).
All Eyes on Facebook This Afternoon
The social media giant is set to report third-quarter numbers today after the closing bell. Here is what the Street is expecting for the print: $13.81B in revenue with GAAP EPS of $1.47.
Despite recent controversies- think exec departures, security breaches, and regulatory probes- Facebook remains a top stock pick for analysts. This is a ‘Strong Buy’ stock with 26 recent Buy ratings, vs 3 Hold and just 1 Sell ratings. (See FB’s price targets and analyst ratings on TipRanks)
“We forecast 3Q revenue to increase +33% y/y to ~$13.74B (versus the Street’s estimate of $13.77B), with ad revenue increasing +34% y/y” writes five-star Stifel analyst Scott Devitt. Devitt has just reiterated his Buy rating and $200.33 price target (41% upside potential).
“Existential questions around user growth maturation, revenue deceleration, and core platform durability hit the mainstream following last quarter’s outlook” Devitt told investors.
But ultimately: “While we recognize these concerns are relevant, we view the risk as reflected at current levels with shares trading at 16x 2020 GAAP EPS ex-cash on “de-risked” estimates versus prior to 2Q.”
Not only is the company positioned to grow at 20%+ over the next three years, but the 2.5B+ global user base also remains intact and hooked on the product, concludes the analyst.
Dropbox: A Favorite Pick Ahead of Earnings
Dropbox is out with its third quarter results on November 8. For the quarter the Street is looking for revenue of $353M and Non-GAAP EBIT of $29M.
In his earnings preview, top RBC Capital analyst Mark Mahaney highlights the file-sharing service as one of his favorite stock picks right now.
“We’re most incrementally near -term constructive on DBX – which has traded down 21% intra-quarter, but we believe has reasonably conservative Street estimates, in part based on probable ARPU [average revenue per user] trends” the analyst wrote in an investor report.
Mahaney reiterated his DBX Buy rating with a $36 price target. From current levels that indicates substantial upside potential of over 58 percent.
According to Mahaney, investors shouldn’t be fazed by Dropbox’s 10 percent trade off on last quarter’s results. “We did not read much into the COO’s departure, and viewed the lack of material Op Income raise as conservatism more than anything” he explained.
Instead investors should focus on the company’s “best of breed FCF margins coupled with robust, consistent revenue growth. Internet Scalability with SaaS Predictability!” Bottom line: “We continue to view Dropbox as addressing a large TAM and view it as one of the clear market leaders.”
In total, DBX scores a Strong Buy top analyst consensus. This is with 5 buy ratings and 2 hold ratings in the last 3 month. Meanwhile the average analyst price target of $34.60 implies a surge of 57% from current levels. (See DBX’s price targets and analyst ratings on TipRanks)