A FANG Stock Q3 Earnings Preview

Investor attention will likely shift away from bank stocks next week, as the "FANG" group is on deck to report earnings. In a preview of the earnings reports, Canaccord Genuity analyst Michael Graham said that while there's a "constructive" backdrop for the companies, Canaccord's price target upsides are at their smallest levels in two years.

Facebook

Consensus estimates call for Facebook Inc FB to show a slowdown in ad revenue growth from 45 percent in the second quarter to 41 percent in the third quarter, while Graham is modeling for a 40 percent growth rate. (See Graham's track record here.) 

The sequentially lower growth rate could be attributed to a slower ad load growth in the quarter, which will likely continue for the rest of the year. Pricing growth likely re-accelerated in the third quarter from 2 percent to 24 percent, and there's still room for further price increases, which bodes well for Instagram and Messenger's future monetization outlook.

Graham maintains a Buy on Facebook with an unchanged $190 price target.

Amazon

Among the entire internet group, Amazon.com, Inc. AMZN has the "most robust long-term growth opportunity" that's still in early stages, Graham said. Investors may recognize this opportunity exiting the second quarter earnings report, as investors likely shrugged off the domestic margin contraction and "don't seem to mind as long as Amazon continues to be the 'black hole' of retail."

A risk remains that Amazon's stock could move lower after the Q3 report if margin contraction continues. This would raise the risk profile for Amazon's stock in the near term, but with expectations for the creation of one or two new businesses every few years in Amazon's portfolio, investors have reasons to be bullish for the longer-term.

Graham maintains a Buy on Amazon's stock with an unchanged $1,200 price target.

Netflix

The main focus of Netflix, Inc. NFLX's earnings report could be the company's recent price increase for many U.S. subscribers. While the company isn't likely to confirm what it has planned for future price increases, any revised estimates will take into account increases "with some regularity" going forward.

It may become more difficult for Netflix to report upside results relative to the Street's expectations in the years to come given future price increases, the analyst said. As such, the upside to the stock may similarly be "more limited" as well.

Graham maintains a Buy on Netflix's stock with an unchanged $225 price target.

Google/Alphabet

Finally, Google/Alphabet Inc GOOG GOOGL continues to be a dominant player in search and revenue from the core unit could remain north of 20 percent for at least this year. Heading into 2018 and beyond, subsequent earnings reports will face tougher comparisons — which implies investors may want to consider other FANG stocks instead.

Alphabet's overall gross profit will face some pressure, as lower margin business segments are showing signs of growing at a faster pace. Gross margin has contracted on a year-over-year basis for each of the past six quarters and has also missed consensus estimates for each of the past nine quarters by 150 basis points on average.

Graham maintains a Hold on Alphabet's stock with an unchanged $1,000 price target.

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