The FANG's Q2: A Sell-Side Preview

The large-cap tech powerhouses Facebook, Inc. FB, Amazon.com, Inc. AMZN, Netflix, Inc. NFLX and Alphabet Inc GOOGL GOOG — collectively "FANG" — are getting a second look from the sell-side ahead of their second-quarter reports. 

The Analysts

Canaccord Genuity analyst Michael Graham has Buy ratings on the following stocks:

• Facebook, with a $240 price target;
• Amazon, with a price target recently lifted from $1,800 to $2,000;
• Netflix, with a price target lifted from $350 to $500. 

Graham has a Hold rating on Alphabet with a $1,050 price target.

Cowen's John Blackledge has Outperform ratings on the following stocks:

• Facebook, with a price target recently lifted from $210 to $235;
• Amazon, with a price target lifted from $2,000 to $2,100;
• Alphabet, with a price target lifted from $1,245 to $1,350.

Jefferies analyst Brent Thill has Buy ratings on Facebook, Amazon and Google. He raised his price target for Facebook to $240. He has a $1,950 price target for Amazon and a $1,360 price target for Alphabet.

The Reporting Schedule

• Facebook: after the market close on Wednesday, July 25.
• Amazon: after the market close on Thursday, July 26.
• Netflix: after the market close on Monday, July 16.
• Alphabet: after the market close on Monday, July 23.

Analysts: Solid Near-term Outlook, Reasonable Valuation For Facebook

Canaccord's Graham expects 41-percent revenue growth and 31-percent earnings per share for Facebook in Q2. A moderation in ad load can be more than offset by pricing and contribution from the Instagram platform, the analyst said. 

Looking ahead, the analyst projects that slowing ad growth will pressure revenue growth, and Graham also said he expects the effects of data and privacy concerns to linger.

Facebook's fundamentals for the rest of the year are on a solid footing and the valution is "reasonable relative to growth," the analyst said. 

Cowen's Blackledge estimates revenue of $13.36 billion and EPS of $1.78, up 43.4 percent and 35 percent, respectively, and roughly in-line with the consensus. Notwithstanding data privacy issues, the analyst said he expects the company to gain share in global digital advertising.

Facebook shares still have an appealing valuation for long-term investors, the analyst said.

Jefferies' Thill raised his Q2 revenue estimate for Facebook to $13.303 billion, citing ad pricing and strength in the Instagram platform. The analyst expects 12-percent MAU growth to 2.247 billion and ARPU of $5.92, up 25 percent.

"Investors will continue their focus on OPEX growth, commentary on engagement on core FB and Instagram, as well as any talk around monetization of Messenger and WhatsApp." 

Related Link: Don't Get Caught Up In Tech ETF Fears

Amazon 'Robust And Durable Growth Outlook' 

Canaccord is modeling 38-percent revenue growth for Amazon in Q2, signalling a 4.5-point sequential deceleration after five quarters of acceleration. The investments the company is making are strengthening long-term competitive barriers, Graham said. 

"We continue to see Amazon as having the most robust and durable growth outlook in the group," the analyst said. 

Amazon's foray into non-core retail markets such as apparel, consumables and food and beverage grocery will drive revenue and gross merchandise volume in the near-to-medium-term, Graham said. Prime will fuel e-commerce growth, he said. 

Jefferies is modeling for an in-line to modest beat and guidance in Q2 for Amazon, for a in-line to a modest beat quarter and guidance. A new online tax ruling will impact margins further in the traditionally weaker Q3, Thill said. 

The firm forecast Q2 revenue of $53.9 billion and EPS of $2.77.

Netflix's High Valuation Has Runway To Spare 

For Netflix, Graham said his subscriber outlook is reasonable in light of a strong content slate. The analyst raised his subscriber and revenue estimates for the streaming service. 

Although the valuation is now "outstretched," the analyst said near-term subscriber momentum will drive Netflix stock, with the EV/sub at only $1,100 on 2019 numbers.

Alphabet's Concerning Margin 

Canaccord expects solid top-line performance from Alphabet and sees 26 percent core Properties revenue growth. Yet gross margin is likely to be sequentially flat, which poses a risk, Graham said. 

The firm forecast 20-percent-plus core revenue growth, and Graham said Amazon will perform well relative to the tech sector as a whole. 

Amazon's stock appreciation potential is limited, as the multiple is at a historically full level, according to Canaccord. 

Cowen expects Search, YouTube and Ad Tech to drive Amazon's core advertising business; and the Cloud, Play and Hardware segments to fuel growth of "Other" revenues. The firm said it is mostly in-line with consensus estimates for Q2 revenue and EBITDA but is 3-percent above-consensus on EPS.

Jefferies' Thill also raised the specter of margin compression despite top-line outperformance, but said he sees Amazon's valuation as compelling. The analyst said Amazon's Q2 targets are achievable.

Stock Performance

For the year-to-date period:

• Facebook shares have gained 17.3 percent.
• Amazon stock has risen 54 percent.
• Netflix stock has advanced 115 percent.
• Alphabet shares have added 14 percent.