Canaccord’s 3Q Preview for Internet Giants: Twitter Inc (TWTR),, Inc. (AMZN), Alphabet Inc (GOOGL)

Michael Graham at Canaccord is out previewing large-cap internet stocks in his coverage universe before the big third-quarter earnings party on October 27th for Twitter Inc (NYSE:TWTR),, Inc. (NASDAQ:AMZN), and Alphabet Inc (NASDAQ:GOOGL). While the analyst remains sidelined on Twitter as discussions of sales and deals continue to swirl around the company, he conversely provides bullish forecasts for both Amazon with its strong eCommerce growth and Alphabet, even while keeping an eye out on its risk/reward ratio.

According to TipRanks, five-star analyst Michael Graham is ranked #163 out of 4,190 analysts. Graham has a 54% success rate and gains 10.1% in his annual returns. However, when recommending TWTR, Graham faces a loss of 32.3% in average profits on the stock. When suggesting AMZN, Graham realizes 24.5% in average profits, and when rating GOOGL, Graham yields 17.8% in average profits. Let’s take a closer look:

Twitter Inc

Ahead of earnings, Graham continues to remain cautious on Twitter as rumors of mergers and acquisitions circle the social networking giant, leaving investors and advertisers vigilant.

As such, the analyst reiterates a Hold rating on shares of TWTR with a $16 price target, which represents a nearly 12% downside from where the stock is currently trading.

From the analyst’s perspective, Twitter’s key metric of growth, monthly active user (MAU) growth “has potential to miss our estimates.” Graham projects 316.5 million total monthly active users for the third quarter, just over consensus of 316.4 million. The analyst forecasts total revenue of $601 million, which falls under the Street’s estimate of $605. Graham explains his longer-term view is more bearish, which is why he falls under consensus on advertising revenue, anticipating “the older Promoted Tweet ad formats will continue to be under pressure.” For adjusted EBITDA, Graham estimates $155 million, which is above the Street at $150 million. For TWTR’s non-GAAP EPS, the analyst anticipates $0.06, under consensus of $0.09.

Although from Graham’s perspective, a sale certainly still “makes sense,” he posits that Twitter’s board will zero in on the initial public offering (IPO) price tag of $26, which hints that “a bidding war may be needed to get there. Meanwhile, we would not be surprised to see brand advertisers getting spooked by the chatter, and competition is increasing.” Coupled with “modest,” user trends, Graham assumes the rise of operating pressures are at hand.

“Amidst M&A chatter, we don’t see a great case for strong fundamentals – Twitter stock is in the midst of a particularly volatile period as investors debate the likelihood and timing of a possible acquisition. Meanwhile, we recently took a fresh look for any fundamental metrics we can monitor, and found them to be consistently modest. In particular, we believe TWTR is likely to have some MAU net adds in Q3, but possibly below our estimate. Also, we can’t imagine the takeover talk is good for Twitter’s ad business (advertisers may grow increasingly wary), and neither is heightened competition from Snapchat and Facebook,” Graham contends.

TipRanks analytics exhibit TWTR as a Hold. Based on 33 analysts polled in the last 3 months, 5 rate a Buy on TWTR, 21 maintain a Hold, while 7 issue a Sell. The 12-month average price target stands at $17.50, marking a 3% downside from where the shares last closed.screen-shot-10-24-16-at-02-05-pm, Inc.

When it comes to Amazon, Graham sees the online retail giant in a stellar position and has every reason to expect “continued strength,” especially from the e-Commerce business side where growth drivers are “still robust.” As such, the analyst reiterates a Buy rating on AMZN with a price target of $825, which represents a nearly 1% increase from where the shares last closed.

The analyst projects AMZN will hit total revenue of $31,958 million for the third quarter, which tops the Street’s projection of $32,663 million. For consolidated segment operating income (CSOI), Graham forecasts $1,438 million, also above consensus of $1,321 million. Graham expects the giant will bring forth $2.07 in non-GAAP EPS for the quarter, just over the Street’s $2.05.

Singing the praises of the giant, the analyst opines, “We believe that we are still in the early innings of Amazon gaining share due to its selection, pricing, and most importantly its logistics dominance. We also note the company appears poised to attack big underpenetrated verticals like fashion, where we have seen television advertising begin to pick up.”

“Amazon has had a string of very strong quarters, and we have no reason to believe the standout performance is likely to abate any time soon. We are generally comfortable with our 26% revenue growth outlook for Q3, which is down from 31% in Q2, and believe there is a decent chance the company is set up for another strong quarter relative to consensus,” Graham surmises.

TipRanks analytics demonstrate AMZN as a Strong Buy. Based on 34 analysts polled in the last 3 months, 33 rate a Buy on AMZN, while 1 maintains a Hold. The consensus price target stands at $936.82, marking a 14% upside from where the stock is currently trading.screen-shot-10-24-16-at-02-05-pm

Alphabet Inc

While Graham remains positive ahead of the quarterly print and expects yet another solid quarter, particularly in terms of GOOGL’s shining light, YouTube, he does signal some concern when it comes to a “weaker” risk/reward profile.

Overall, the analyst does not anticipate an adverse outcome and merely highlights prospective concerns. As such, Graham reiterates a Buy rating on shares of GOOGL with a $900 price target, which represents a 9% increase from current levels.

For the third quarter, Graham expects the Google parent-company to bring in net revenue (ex-TAC) of $18,053 million, which is greater than the street at $17,983 million. For non-GAAP operating income, the analyst forecasts $7,463 million, compared to consensus of $7,430 million. Graham anticipates non-GAAP EPS of $8.68, just over the Street’s $8.63.

From the analyst’s perspective, thanks to Alphabet’s heavy-hitter asset YouTube and other mobile channels, the growth of websites revenue has largely been “impressive.” Moreover, Graham believes “several new ad innovations will keep growth high” and YouTube continues to show its “ability to compete in a robust video world […] We believe YouTube can continue to thrive and be an industry leader.”

“For the most part, we expect the primary growth drivers from 2015 and H1/16 to continue in Q3, with mobile and YouTube driving Websites revenue higher (still above 20%). That said, in Q3 Google begins lapping impactful ad product updates from last year that were a big part of the re-acceleration in core revenue, and the stock is now less than 10% away from our $900 price target. We are not predicting a negative outcome for Q3, but we note that with fewer sources of potential upside than we see with FB and AMZN, the easy money in GOOGL stock has likely been realized over the past nine months,” Graham concludes.

TipRanks analytics indicate GOOGL as a Strong Buy. Based on 31 analysts polled in the last 3 months, 30 rate a Buy on GOOGL, while 1 issues a Sell. The 12-month price target stands at $949.81, marking a 15% upside from where the shares last closed.screen-shot-10-24-16-at-02-06-pm


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