As we approach earnings season for some of the big tech giants, we take a look at RBC’s cheat sheet to gain a better understanding of how these stocks are set to perform. Here we include words of wisdom from RBC Capital’s Mark Mahaney as well as the bigger picture from the Street. Which ‘Strong Buy’ stocks make the most compelling opportunities right now, and which risky stocks should you think twice about before investing?
Our key mantra at TipRanks is ‘know who to trust’. That is why we rate analysts and rank them according to their success rate and average return. Mahaney, for example, is one of the top 25 analysts on TipRanks (out of 4,700 tracked analysts)- with a 76% success rate and 25% average return. By following only the best-rated analysts you can optimize your investing decisions and consistently outperform the market.
Now let’s take a closer look at how these five key tech stocks are shaping up:
Least Risk: Facebook Inc
Out of all the large-cap internet stocks, Mahaney is most “near-term constructive” on Facebook Inc (NASDAQ:FB). This is the stock with the least risk and “clearly strengthening trends” advertiser trends. He sums up: “17 straight quarters of 50%+ Y/Y Ad Revenue Growth and mid to-high-teens MAU growth (off massive scale) is unprecedented and speaks volumes about FB’s value proposition to both advertisers & consumers. Our recent Marketer survey also Bullish. And FB still has several new large revenue growth drivers (Instagram, Video, Messaging).”
For earning results on November 1, RBC is expecting Revenue, Adjusted EBITDA, and GAAP EPS of $10.05B, $6.21B, and $1.30 which comes in slightly above consensus of $9.84B, $6.18B, and $1.27. Keep an eye out for user growth and engagement, says Mahaney, estimating robust year over year MAU (monthly active user) growth of 14% to 2.04 billion.
This Strong Buy stock has top marks from the Street. In the last three months analysts have published 31 buy, 2 hold and 1 sell rating on FB. With an average analyst price target of just under $200, analysts believe this stock still has upside potential of over 13%.
Noisy Results: Amazon.com, Inc.
Results for Amazon.com, Inc. (NASDAQ:AMZN)- out in late October- could be “noisy”. There is some risk going into the print as “Street Q4 Operating Income estimate appears to imply snapback in Op Margins, which seems unlikely given current investment cycle.” Mahaney is anticipating $42.4B in Revenue, $24MM in GAAP operating income and ($0.14) in GAAP EPS for the June quarter.
Following AMZN’s $13.7 billion acquisition of WFM at the end of August, he is forecasting WFM revenue for the partial quarter of $1.2 billion and $49MM in Operating Income, adding that “one challenge going forward will likely be limited disclosure by AMZN of WFM’s financial impact.”
If we take a step back from results specifically, Mahaney is very bullish on Amazon. This isn’t surprising as the stock has one of the best outlooks on the Street. In the last three months 30 out of 32 analysts have published AMZN buy ratings. And the average analyst price target translates into significant upside of over 20% from the current share price.
Most Risk: Snap Inc
Controversial photo-disappearing app Snap Inc (NYSE:SNAP) is out with its results in early November. “We believe the riskiest stock near-term may be SNAP, which materially outperformed the S&P intra-quarter while visibility remains uncertain and estimates appear somewhat aggressive” warns Mahaney.
He notes that the firm’s recent Marketer survey showed relatively negative trends for SNAP regarding future spend intentions and ROI perceptions. For the quarter he is forecasting $222MM in total revenue and ($201MM) in Adjusted EBITDA- slightly below the Street- with Daily Active User additions of 8MM. “We believe there is a greater probability of SNAP estimates coming down rather than up post the EPS print” he says despite his bullish take on SNAP’s longer term prospects.
This is a stock that divides the Street. Snap has received 8 buy, 15 hold and 5 sell ratings in the last three months. Although the average price target suggests a marginal downside from the current share price, the individual analyst price targets range from $30 on the high to just $8 on the low.