What To Expect From Q3 Internet Earnings

The tech sector has had a lackluster quarter performance-wise since the beginning of second-quarter earnings season. Tech bulls are hoping the sector can get back on the right track when third-quarter earnings season kicks off with Netflix, Inc. NFLX on Oct. 16.

Nomura Instinet analyst Mark Kelley and Deutsche Bank analyst Lloyd Walmsley both recently previewed third-quarter earnings for some of the biggest tech companies. Here’s a summary of what investors can expect.

Netflix (Oct. 16, After The Close)

Consensus analyst estimates call for EPS of $1.04 on $5.249 billion in revenue. Analysts are also looking for 800,000 domestic paid subscriber adds and 5.9 million international paid subscriber adds.

Kelley said he is expecting a slight revenue beat ($5.3 billion) but an international subscriber growth beat of 6.2 million. However, he said fourth-quarter guidance will be critical.

“We also don’t believe numbers for 3Q matter much for the stock this earnings season (barring any large surprises) with the looming Disney+ launch coming in November, and though it's a bit early to be talking about 4Q, we believe numbers need to be near perfect as any wrinkle in the results will make it easy for bears to point to new competition in the marketplace as having an impact,” Kelley wrote.

Alphabet Inc GOOG GOOGL (Oct. 28, After The Close)

Consensus analyst estimates call for EPS of $12.91 on revenue (ex-TAC) of $32.735 billion. Nomura is calling for an EPS miss of $11.93 on revenue of $32.733.

“The focus for this quarter’s call will likely be centered on advertising growth trends after the surprising deceleration in 1Q19 and subsequent rebound in 2Q19 – some questions remain as to which quarter was an anomaly,” Kelley said.

Walmsley is bullish on Google heading into earnings season.

“We look for no deceleration in Google Sites growth ex-FX at 20.5%, with potential for upside given comps ease 150bp and on the back of new ad products, with Google recently launching app install ads within the Discover surface and opening up Google Map ads,” Walnsley wrote.

Facebook, Inc. FB (Oct. 30, After The Close)

Consensus analyst estimates call for EPS of $1.90 on revenue of $17.36 billion. Nomura is calling for EPS of $1.94 on revenue of $17.62 billion and 38 million net subscriber adds.

“From a product standpoint, we’re looking for color on newly introduced Threads, which is a messaging app for IG users, the longer-term e-commerce opportunity (IG shopping) the company’s broader shift to an all-in-one suite of apps akin to WeChat (Facebook is linking the majority of its disparate properties), as well as an update on Libra (PayPal announced it would withdraw last week),” Kelley wrote.

Walmsley said Wall Street EPS estimates will probably fall following earnings, but the reset will position Facebook well heading into 2020.

“We expect solid 3Q results at Facebook with upside potential to our top-line projections for 3Q ad revs +29% ex-FX with some flow-through into forward revenue estimates, though more than offset with conservative early 2020 opex guidance - likely at 35%-45% growth ex-FTC fine, in our view,” Walmsley wrote.

Amazon.com, Inc AMZN (Oct. 24, After The Close)

Consensus analyst estimates call for EPS of $4.53 on revenue of $68.82 billion.

Walmsley said online store growth, 1-day Prime shipping, and easier comps in international sales growth are all tailwinds for Amazon.

“We are a hair below consensus on AWS revenue ($9.07B or 35.8% y/y growth vs consensus of $9.11B or 36.4% y/y) but we think AWS related sales and marketing investment in 1H should pay dividends helping stabilize AWS growth in 2H, so we do not expect the same magnitude of weakness as last quarter,” Walmsley wrote.

Twitter Inc TWTR (Oct. 24, Before The Open)

Consensus analyst estimates call for revenue of $874 million on 334 million monetizable daily active users. Nomura is calling for revenue of $871 million on just 142 million mDAUs.

“We believe expectations are relatively high for TWTR, and we expect Video to remain a focus for the call as well as current trends in International markets,” Kelley wrote.

Snap Inc SNAP (Oct. 22, After The Close)

Consensus analyst estimates call for revenue of $435 million on 207 million global daily active users. Nomura is calling for revenue of $434 million on 206 million DAUs.

“We’re also interested to hear more about the 3D camera mode, and any early learnings from its Commercial ad format,” Kelley wrote.

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