RBC Capital’s 2Q Earnings Preview: Amazon.com, Inc. (AMZN), Facebook Inc (FB), Alphabet Inc (GOOGL)

Top analyst Mark Mahaney at RBC Capital weighs in on internet giants Amazon.com, Inc. (NASDAQ:AMZN), Facebook Inc (NASDAQ:FB), and Alphabet Inc (NASDAQ:GOOGL). Dive in to see why this analyst believes you should add positions in these three ahead of upcoming earnings reports.

Mark Mahaney is ranked #7 out of 4,077 analysts on TipRanks. He maintains a 65% success rate and an average return of 19.7%. When suggesting AMZN, the analyst maintains a success rate of 91% and an average profit of 38%. When recommending FB, Mahaney sustains a success rate of 100% and an average profit of 41.5%. When rating GOOGL, the analyst upholds a success rate of 82% and an average profit of 31%.

Amazon.com, Inc.

Mahaney weighs in on Amazon ahead of the company’s second-quarter earnings set for Thursday, July 28, 2016. The company is expected to report earnings in-line with consensus estimates, according to the analyst. The analyst reiterates an Outperform rating with a price target of $800.00

Mahaney expects AMZN to report $29.6B in revenue, $1.07 B in pro forma operating income, and GAAP EPS of $1.11 on July 28th. According to the analyst, “Our revenue estimate is in-line with consensus but above the midpoint of company guidance while our GAAP EPS estimate of $1.11 is just ever-so-slightly higher than consensus of $1.10.”

The analyst explains that, according to comScore U.S Online Retain spend trends, total U.S. Online Desktop Spending rose 17% in Q2. The analyst also notes that Amazon posted Q2 SSS growth of 12% year-over-year, based on ChannelAdvisor data. Based on comScore data, Amazon “Sites Q2 U.S. total Multi-Platform Unique visitor growth was up 1% Y/Y, in-line with Q1. U.S. average Total Page Views to Amazon.com grew 20% Y/Y, vs. 20% Y/Y growth in Q1.”

The analyst firmly believes that Amazon holds as a core long investment because of its two key end-markets – retail and cloud computing – and the competitive barriers around the company’s core businesses. The analyst upholds that Amazon maintains a level of excellence in business execution and extends that his $800.00 price target is based on a sum of parts approach, valuing North American Retail, International Retail, and AWS.

According to TipRanks, AMZN is rated as a Strong Buy, with 92% of analysts issuing a Buy rating for AMZN, and 8% maintaining a Hold rating for the stock. The consensus target price for AMZN is $831.87, marking a 12.47% upside from current prices.

Facebook Inc.

Mahaney also weighs in on Facebook ahead of the company’s second-quarter earnings report tomorrow. The analyst reiterates an Outperform rating with a price target of $165.00.

According to the analyst, “we are expecting revenue, Non-GAAP EBIT and non-GAAP EPS of $5.99B, $3.18B and $0.80, respectively, nearly in-line with Consensus at $6.00B, $3.24B and $0.81. Note that our estimates imply 51% Y/Y (ex-FX) revenue and 59% Y/Y non-GAAP EPS growth.”

The analyst is expecting user engagement to grow 14% year-over-year, and flat advertising revenue growth. The analyst continues to recommend FB, despite material share price outperformance over the past 18 months. Mahaney sees “FB’s growth-adjusted valuation – a 15X ’17 EV/EBITDA multiple vs. almost 40% EBITDA growth – as highly attractive.” Nanigans reported positive pricing data for Facebook ads in Q2 in addition to a report that showed significant adoption and spend on Instagram.

Overall, the analyst believes that the markets underappreciate Facebook’s product innovation, usage, and user growth. In addition, he sees significant upside in monetization momentum and long-term P&L.

According to TipRanks, 92% of analysts issue a Buy rating for FB, while 8% maintain a Hold rating. The consensus target price for FB is $146.71, marking a 20.62% upside from current levels.

Alphabet Inc.

Finally, Mahaney offers his insights on Alphabet ahead of the company’s Q2 earnings report on Thursday, July 28. Mahaney reiterates an Outperform rating for the stock with a price target of $1,000.

The analyst believes that the Street’s estimates are reasonable heading into earnings. Mahaney stated, “For Q2:16, we are expecting gross revenue of $20.55B, net revenue of $16.72B, non-GAAP operating income of $7.08B, and non-GAAP EPS of $8.35. Our gross and net revenue estimates are a bit below consensus, while our non-GAAP operating income and non-GAAP EPS estimates are just above consensus.”

The analyst explains that the company’s share of U.S desktop search queries has fallen 10bps in Q2 from Q1, but notes that over time, desktop is becoming a less important factor for the company’s valuation.

Revenue and operating margins remain an integral part of investor focus at this time, however. The analyst explains, “we are looking for Core Google gross revenue of $20.4B and net revenue of $16.6B, driven by increasing strength in Mobile Search, Programmatic, and YouTube.” Paid clicks, CPC’s, and TAC are also at the center of the analyst’s focus heading into the company’s earnings.

Overall, Mahaney believes there is still significant secular growth potential for internet advertising, strong market share in Google’s core search business, and significant “competitive moats” protecting Google from outside competition.

According to TipRanks, 100% of analysts issue a Buy rating for GOOGL. The consensus target price for GOOGL is $921.55, marking a 21.65% upside from current prices.


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