Applied Optoelectronics: How Amazon, Facebook And Microsoft Will Impact Its Q1 Earnings

Applied Optoelectronics Inc AAOI is scheduled to report first-quarter results after Tuesday's market close and is expected to show investors it remains well-positioned to benefit from the "growing dynamic of hyperscale data centers," according to D.A. Davidson.

The Analyst

Analyst Mark Kelleher maintains a Buy rating on Applied Optoelectronics' stock with a 12-18-month price target lowered from $55 to $50.

The Thesis

Applied Optoelectronics is expected to report revenue of around $69 million in Q1, with the "usual suspects" of Amazon.com, Inc. AMZN, Facebook, Inc. FB and Microsoft Corporation MSFT combining for more than 70 percent of total revenue, Kelleher said in a Monday note. (See the analyst's track record here.)

Encouragingly, the company's supply agreement with Facebook is for a minimum commitment in 2018 of $125 million, Kelleher said. The agreement is related to just one product, so the possibility of the social media giant increasing its spending represents a "significant incremental positive," he said.

Applied Optoelectronics is projected to report a gross margin rate of around 40-41 percent in Q1 and earn around 30 cents per share, the analyst said. 100G products are expected to continue in an ongoing trend of accounting for a higher percentage of total revenue, he said.

Beyond Tuesday's print, the company's future earnings reports should show top-and-bottom-line growth as its inventory adjusts, Kelleher said.