Sell-Side Expectations For Amazon, Twitter And Other Internet Earnings This Week

Internet companies, which have seen a decent run-up thus far this year, are staring at another catalyst that could make or break the rally. That catalyst? Earnings.

The First Trust DJ Internet Index Fund (ETF) FDN has gained 12.16 percent thus far this year on top of the 10.37 percent advance in 2016.

Loop Capital Markets' Blake Harper previewed the earnings of five Internet companies in his coverage universe that are scheduled to report earnings this week, namely Amazon.com, Inc. AMZN, Alphabet Inc GOOG GOOGL, Twitter Inc TWTR, Lendingtree Inc TREE and GrubHub Inc GRUB.

Twitter: Challenged

Twitter, which is due to report Wednesday before the markets open, is expected to report in line to below-consensus results for its fourth quarter. Loop Capital Markets thinks the company would continue to be challenged, with its critical issue of reviving user growth, especially in the United States.

The firm expects MAUs to be flat in the United States at 67 million and increase 2 million internationally to 252 million, given the lack of meaningful product changes.

The firm termed Twitter's loss of the Thursday night NFL games live streaming contract as inevitable, given that the NFL was wanting to experiment with different digital distribution channels and that Twitter was not willing to pay a premium, as its fourth quarter U.S. DAUs were flat.

New Verticals, Mortgage Purchases Key To LendingTree's 2017 Growth

Loop Capital Markets expects the company to report results in line with its estimates, which are slightly below the consensus estimate. LendingTree is expected to report its results before the market opens on Thursday.

The firm estimates mortgage revenue growth of 5 percent for both purchases and refinances, and non-mortgage revenue growth of 18 percent on an organic basis. Additionally, the firm expects the company's initial forays into new markets such as insurance, as well as the increasing digital marketing spend on credit card customer acquisitions to support longer term growth forecasts.

Grubhub Thriving Despite Competition

Harper expects Grubhub's first-quarter results to be in line with its above-consensus estimates. The company is scheduled to release its results before the markets open on Thursday.

"We are 4 percent above the Q1 consensus adjusted EBITDA estimate and believe the company's delivery business in tier-2 and tier-3 markets should help offset competitive pressures in tier-1 markets," the analyst said.

"Our latest consumer survey results indicate Grubhub has slipped to second place in brand recognition and consumer usage to be slightly behind Amazon Prime Now."

Quoting comScore, the analyst said Grubhub increased its unique visitors to 6.9 million, up 25 percent year-over-year, and boasted the largest audience in the online food delivery category, with over 26 restaurant chains. This, according to the analyst, will contribute to upside to the consensus of 25 percent gross food sales growth in 2017.

Google Should See No Hit From YouTube Challenges

The firm expects Google, which is due to report after the market close on Thursday, to post in-line results. While conceding that the YouTube advertiser boycott has elevated near-term risk, the firm said it does not expect any longer-term impact.

"We forecast the company's own website revenues to grow 17.5 percent YoY in Q1, with Network Member's sites growing 3 percent, and its Other segment growing 38 percent. We estimate the Other Bets operating losses will narrow in Q1 to approximately $500 million," the firm added.

Amazon Juggernaut Will Roll On

Amazon is also due to report its first-quarter results after the market close on Thursday. Harper expects the company to report results, in line with its expectations, with 25 percent growth in North American retail and 3 percent growth in North American media. Internationally, the growth is expected at 23 and 5 percent, respectively.

The analyst expects AWS to show revenue growth of 45 percent, with its revenue share exceeding 10 percent for the first time.

"We forecast AWS margins to increase to 28 percent, up from 23.5 percent a year ago, and to represent over 80 percent of total operating income in Q1," the analyst said.

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