Countdown to Facebook Inc (FB) and, Inc. (AMZN) Q4 Earnings

Earnings season is about to set back into motion, and two of the biggest stock giants, Facebook Inc (NASDAQ:FB) and, Inc. (NASDAQ:AMZN), are about to post fourth-quarter earnings this week.

Top analyst Mark Mahaney at RBC Capital, and the best analyst on the Street sets expectations. The analyst maintains great confidence in Facebook’s buying opportunity, thanks to its surge of user growth and engagement. With regards to Amazon, the analyst is a little less bullish on the near-term, highlighting some risk for this quarter even after a robust holiday season.

Mark Mahaney has a very good TipRanks score with a 73% success rate and the highest ranking of #1 out of 4,378 analysts. Mahaney garners 21.9% in his annual returns. When recommending FB, Mahaney realizes 43.6% in average profits on the stock. When suggesting AMZN, Mahaney yields 35.1% in average profits on the stock.

Let’s take a closer look:

Facebook: High Engagement, High Margins, and Billion Plus Growing User Base Means Buy, Buy, Buy

Facebook is set to report tomorrow evening, and Mahaney sees the social media giant’s base pursuing its strong reach with no end in sight. Therefore, the analyst reiterates an Outperform rating on shares of FB with a $170 price target, which represents a 30% increase from where the stock is currently trading.

For the fourth quarter, the analyst looks for $8.44 billion in revenue, $5.12 billion in non-GAAP EBIT, and $1.33 in non-GAAP EPS, whereas consensus calls for $8.50 billion in revenue, $5.11 billion in non-GAAP EBIT, and $1.33 in non-GAAP EPS.

Mahaney believes, “Based on intra-quarter data points, channel checks, and our model sensitivity work, we view current Street December quarter estimates as reasonable, with equal chances of upside vs. downside variance.”

With growth rising to 16% year-over-year, attaining 1.79 billion users by the third quarter of 2016, the analyst asserts, “Facebook has continued to grow users at a reasonably robust pace off a very large base.” Engagement hit global “record highs” at 66.0% for the third quarter, when considering Daily Average Users and Monthly Average Users (DAU and MAU) metrics. For the fourth quarter, Mahaney expects MAU growth to rise 14% year-over-year to 1.81 billion, which would mark a “slight” quarter-over-quarter dip in the DAU/MAU ratio down to 65.9%.

Secondly, with regards to advertising revenue growth, the analyst opines, “Facebook saw ad revenue growth of 59% (ex-FX) in Q3. In Q4, FB will face a 9pt tougher Y/Y Ad revenue comp (exFX), and we are modeling a Q4:16 Ad revenue growth rate (ex-FX) of 48%.” When considering what to expect for margin levels, Mahaney highlights, “For Q4, we are looking for a 60.7% non-GAAP operating margin, up 40bps Y/Y.”

Overall, “We note management Facebook has stated they will continue to invest in the platform, with management stating that 2017 will be an aggressive investment year. We would expect FB to guide to a broad range of opex growth for 2017 – something on the order of 40%-50%, tho we could easily see a lower or higher range,” Mahaney concludes.

TipRanks analytics exhibit FB as a Strong Buy. Out of 39 analysts polled by TipRanks in the last 3 months, 36 are bullish on Facebook stock and 3 remain sidelined. With a return potential of 18%, the stock’s consensus target price stands at $155.19.

Amazon Remains a Long-Term Buy, But There Are Some Points of Risk 

With Amazon to deliver its fourth-quarter print on February 2nd, Mahaney offers a positive overall glimpse into the stock- but with a warning tag attached.

Upon assessing strong holiday e-commerce trends this season, the analyst reiterates an Outperform rating on AMZN with a price target of $950, which represents a 14% increase from where the shares last closed.

For the fourth quarter, Mahaney models $44.0 billion in revenue, $1.07 billion in GAAP operating income, and $1.31 in GAAP EPS. The analyst looks to a 100 bps year-over-year rise to 32.9% for gross margins, adding, “We believe investments in international markets (esp. India), logistics infrastructure, AWS, Original Content and in a range of Pillar Projects will continue weighing on profitability. We look for a 2.4% GAAP operating margin in Q4, down 70 bps from Q4:15.”

For Amazon Web Services (AWS), the analyst expects a 50% year-over-year rise to $3.6 billion in revenue with GAAP operating profit of $969MM, which denotes a 27% margin. For North America retail, the analyst projects a 21% year-over-year rise to $26.0 billion in revenue and a 2.5% margin increase to $650MM in NA retail GAAP operating profit. For key international retail revenue, Mahaney predicts a 24% year-over-year ex-FX rise to $14.4 billion in international retail revenue with a $550MM segment loss.

In Amazon’s favor, the analyst points to comScore stats that reveal “a strong selection of ‘hot products’ (e.g. Alexa devices) as a key factor” to the online and e-commerce leader’s success. Additionally, Mahaney underscores recent fourth-quarter results from eBay Inc (NASDAQ:EBAY) as a “modestly positive read-thru for AMZN, given positive comments about consumer strength during the holiday season.”

Though the analyst still sees more reason to buy than to become cautious, he underscores some concern, explaining, “We see greater than normal risk to Street estimates for the December quarter and for the March quarter guide due in part to FX swings, despite signs of strong Online & Amazon demand trends throughout the Holiday Season.”

Ultimately, even amid the risk factor, the analyst maintains his bullish perspective in the grand scheme of Amazon’s prospects. “AMZN remains a core long for us because a) its two key end-markets (Retail & Cloud computing) are only 10% penetrated and growth rates are extremely consistent and inherently very impressive; b) the Competitive Moats around AMZN are getting deeper and its flywheels are spinning faster (see our Sept 15th note, “Alexa, How Fast Do Flywheels Spin?”; and c) Excellent execution,” Mahaney surmises.

TipRanks analytics demonstrate AMZN as a Strong Buy. Based on 24 analysts polled in the last 3 months, 23 rate AMZN stock a Buy while 1 maintains a Hold. The 12-month average price target stands at $944.48, marking a nearly 14% upside from where the stock is currently trading.

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