RBC Capital’s Mark Mahaney Offers Q1 Earnings Run-Up on Amazon.com, Inc. (AMZN) and Alphabet Inc (GOOGL)

Amazon.com, Inc. (NASDAQ:AMZN) and Alphabet Inc (NASDAQ:GOOGL) are set to rock the tech world come this Thursday with first-quarter results for the year that has top analyst Mark Mahaney at RBC Capital angling from a bullish case. Between Amazon Web Services becoming a veritable force to be reckoned with in the e-commerce sector and Alphabet “leading and growing market share” in the internet advertising battle field, Mahaney is all bets in for these two leading players.

Mark Mahaney has a very good TipRanks score with a 73% success rate and a high ranking of #21 out of 4,571 analysts. Mahaney garners 17.1% in his annual returns. When recommending AMZN, Mahaney gains 36.1% in average profits on the stock. When recommending GOOGL, Mahaney earns 12.9%.

Let’s take a closer look:

Amazon Remains a Core Long

Amazon could do little wrong to deter Mahaney from the Amazon bullish train, and its forthcoming quarterly print looks to continue to keep his confidence down the line. Therefore, ahead of earnings, the analyst reiterates an Outperform rating on shares of AMZN with a $900 price target.

For the first quarter of 2017, the analyst is calling for $34.6 billion in revenue from Amazon, along with $907 million in GAAP operating income, and $1.07 in GAAP EPS. Though Mahaney’s revenue expectations fall under consensus, he notes they do overshoot the mid-point of AMZN’s own outlook, with his operating income forecast beating consensus and topping AMZN’s guidance. Meanwhile, Mahaney notes that his GAAP EPS projection of $1.07 is just a hair under consensus of $1.09. Regarding gross margin, the analyst looks for 36% along with a 2.6% GAAP operating margin.

Moreover, the analyst estimates AWS revenue will hit a 40% acceleration year-over-year to $3.6 billion coupled with an AWS GAAP operating profit of $835 million, indicating a 23% margin. For domestic retail results, Mahaney models for $20.3 billion, a 19% year-over-year rise, and for international retail revenue, Mahaney sets expectations for $10.7 billion, another 19% year-over-year rise ex-FX. The analyst also braces for a $700 million international retail segment loss.

With momentum steamrolling on the online auction and e-commerce leader’s side, the analyst sees no end in sight, adding, “The growth of Marketplace at scale is impressive and we see no reason for current momentum to stall. Amazon is using Prime Now to meet (or spark) consumer demand and shorten delivery time expectations. 3)Updating the Long Thesis, ‘Play it Again Alexa’- The value prop for Alexa-enabled devices is becoming increasingly powerful and based on our second proprietary survey, awareness and ownership are ramping.”

Overall, “AMZN’s North America and International Retail revenue growth rates are extremely consistent and inherently very impressive. Amazon remains a core long because — a) its two key end-markets (Retail and Cloud Computing) are still only ~10% penetrated; b) Competitive Moats around AMZN are deepening; c) AWS is possibly the Biggest Mix Shift Story In Tech Today – 10% of revenue (AWS) growing 2X faster with 10X the margins as Core Retail; & d) Amazon’s execution is excellent.”

TipRanks analytics show AMZN as a Strong Buy. Out of 35 analysts polled by TipRanks in the last 3 months, 33 are bullish on Amazon stock while 2 remain sidelined. With a return potential of nearly 10% the stock’s consensus target price stands at $995.33.

Alphabet Floats on Competitive Moats

In terms of Alphabet, Mahaney’s “cheat sheet” for the print looks pretty good for the tech giant, taking into account Google’s innovations fresh off the page from YouTube TV to Android Wear 2.0, and solid strategic business moves forward. As such, the analyst reiterates an Outperform rating on GOOGL with a $1,025 price target, which represents a 16% increase from where the shares last closed.

For the first quarter of 2017, the analyst anticipates gross revenue of $24.69 billion, net revenue to reach $20.13 billion, GAAP operating income to level at $6.33 billion, and GAAP EPS to land at $7.57. In fact, the analyst is even more confident than consensus, expecting gross revenue projection of $24.17 billion and net revenue of $19.76 billion. For GAAP EPS, the analyst looks for $7.39. When looking at Google Websites revenue growth, the analyst $17.07 billion, signifying a 19% year-over-year climb.

Mahaney underscores, “Google’s share of U.S. Desktop Search queries has fallen 10bps in Q1 from Q4. However, we note that Desktop is becoming less important over time.”

Moreover, “On March 27, we published our 9th survey of advertising professionals in conjunction with AdAge; we saw Google-related takeaways as incrementally positive,” continues the analyst.

“Based on intra-quarter data points and our model sensitivity analysis, we believe Street estimates for Q1 are relatively reasonable on both the top-line and the bottom-line. Finally, we note that Alphabet will no longer exclude SBC from their non-GAAP results, as they view this expense as a real cost of doing business – something we view as a positive,” concludes Mahaney, bullish on Alphabet’s prospects.

TipRanks analytics indicate GOOGL as a Strong Buy. Based on 32 analysts polled by TipRanks in the last 3 months, 27 rate a Buy on Alphabet stock, 4 maintain a Hold, while 1 issues a Sell. The 12-month average price target stands at $989.29, marking a nearly 12% upside from where the stock is currently trading.

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