With earnings deliveries coming for the first round of the year from Amazon.com, Inc. (NASDAQ:AMZN) and Twitter Inc (NYSE:TWTR), analysts from Wedbush and RBC Capital are setting rather mixed expectations for these two titans of the tech industry. As Amazon is a rising titan, garnering a price target boost from one analyst, one of Wall Street’s best performing top analysts sees the fall of Twitter’s once glossy era. In fact, the analyst believes Twitter now just has a repute for volatility of the “large cap ‘nets.” With Amazon on the up and up, and Twitter seesawing its way back down from a high totem pole, all eyes are on these quarterly prints this week. Let’s dive in:
Amazon Gets a Price Target Spring
Wedbush analyst Michael Pachter is gunning for a stellar print from Amazon for its first quarter earnings expected to be released this Thursday evening. As such, the analyst reiterates an Outperform rating on shares of AMZN while lifting the price target from $900 to $1,250, which represents a just under 38% increase from where the stock is currently trading.
For the first quarter of 2017, Pachter anticipates the online auction and e-commerce giant to bring in $35.97 billion in revenue, more confident than consensus of $35.30 billion, and just ahead of AMZN’s guided revenue range of $33.25 to $35.75 billion. From the analyst’s stance, this strength can be attributed to robust Prime memberships growth, “solid” sales of products from the Amazon brand, as well as an AWS expansion. Additionally, the analyst projects operating income of $1.06 billion, which would beat consensus expectations of $900 million and the outlook calling for $250 to $900 million. Also more bullish than the consensus EPS estimate of $1.13, Pachter believes AMZN will hit $1.30 in EPS this quarter.
“We expect Amazon to continue delivering substantial earnings growth, tempered by spending on new initiatives. Amazon appears intent upon growing annual profits (with some quarterly volatility), which we expect to continue as the company invests in growth. Amazon Web Services (‘AWS’) should be the growth engine, with its gross and operating margins expanding rapidly. The mix of Fulfillment by Amazon (‘FBA’) should drive further gross margin expansion and we expect international Prime membership growth to drive overall retail revenue. Operating margin expansion will likely be tempered somewhat by increased spending on video content, fulfillment, and international expansion; however, the trajectory is clear and the company’s investment strategy purposeful,” Pachter concludes.
For 2018, the analyst introduces new estimates, calling for $207 billion in revenue, $8.2 billion in operating income, and $10.73 in EPS.
According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, one-star analyst Michael Pachter is ranked #4,048 out of 4,557 analysts. Pachter has a 50% success rate and loses 2.2% in his annual returns. When recommending AMZN, Pachter earns 0.0% in average profits on the stock.
TipRanks analytics show AMZN as a Strong Buy. Out of 34 analysts polled by TipRanks in the last 3 months, 33 are bullish on Amazon stock while 1 remains sidelined. With a return potential of nearly 9%, the stock’s consensus target price stands at $987.13.
Twitter’s a Volatile Earnings Volcano
Twitter is set to deliver its first quarter print for the year this Wednesday before the open. Though top analyst Mark Mahaney at RBC Capital appreciates that the social media platform has taken steps to refresh its offerings, infusing new life with an upgrade in initiatives, none of these product updates are enough to change what he sees as a bearish picture.
Ahead of earnings, the analyst reiterates an Underperform rating on TWTR with a price target of $12, which represents a close to 19% downside from where the shares last closed.
For the first quarter of 2017, Mahaney is modeling for Twitter to bring in $542 million in revenue, $92 million in adjusted EBITDA, and $0.04 in non-GAAP EPS, compared to consensus expectations looking for $518 million in revenue, $97 million in adjusted EBITDA, and $0.01 in non-GAAP EPS. Twitter’s team guides implied revenue for the first quarter at a range of $441 to $543 million with explicit adjusted EBITDA guidance between $75 and $95 million. Twitter has outclassed its revenue outlook 7 of the past 11 quarters (but not last quarter), and its EBITDA outlook 11 out of 11 consecutive quarters. The high end of Twitter’s revenue outlook would indicate a 9% year-over-year dip compared to the 1% year-over-year rise seen last quarter.
Mahaney notes, “Based on intra-quarter data points and our model sensitivity work, we view Street estimates as conservative for the March quarter. However, we view Street Q2:17 Revenue and EBITDA estimates as bracketable, though not beatable. A key stock factor, however, remains Twitter’s MAU metrics, especially in the U.S., where visibility is limited.”
Moreover, “Twitter has updated its offerings and product usage over the past quarter with several new initiatives. While none of them will likely materially change user/usage growth, they are positive steps,” elaborates the analyst, who also points to his 9th AdAge survey that evaluated over 1,500 advertising professionals that shows “Twitter-related takeaways as slightly more positive – or less negative – than our last iteration in September” in terms of “overall industry sentiment towards Online marketing tools.”
Overall, “We would note that of the Large Cap ‘Nets, TWTR has had the largest earnings volatility with an average +/-13% over the last 12 quarters,” surmises Mahaney, sounding the alarm on the social media’s story arc.
Mark Mahaney has a very good TipRanks score with a 70% success rate and a high ranking of #29 out of 4,557 analysts. Mahaney realizes 16.5% in his yearly returns. When recommending TWTR, Mahaney yields 11.8% in average profits on the stock.
TipRanks analytics indicate TWTR as a Hold. Based on 29 analysts polled by TipRanks in the last 3 months, 4 rate a Buy on Twitter stock, 15 maintain a Hold, while 10 issue a Sell. The 12-month average price target stands at $15.04, marking a 2% upside from where the stock is currently trading.
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