RBC's 6 Small Cap Internet Companies To Watch
On January 26, RPC Capital Markets analysts Mark Mahaney and Rohit Kulkarni published a note previewing 22 small cap Internet companies before fourth quarter reports are released. Here are the highlights for 6 of those companies:
AOL, Inc. (NYSE: AOL)
The mass media corporation is expected to release Q4 results on February 11. Mahaney and Kulkarni anticipate revenue of $717 million, slightly below the consensus of $723 million. They estimate GAAP earnings per share of $0.57, above the consensus of $0.53.
Looking forward, the analysts estimate 8 percent year-over-year growth in “AOL’s Advertising segment revenue,” bringing the total to $548 million. Additionally, they expect a 4% year-over-year decrease in AOL subscription revenue, bringing the segment down to $150 million. The analysts also noted several negative trends, including the decrease of unique visitors on Huffington Post and MapQuest. As for AOL Mobile, the analysts noted that “growth rates remain robust,” but “the decelerations across AOL’s Mobile assets [are] negative.”
Mahaney and Kulkarni maintain a Sector Perform rating on AOL with a $45 price target, noting, “[AOL] is emerging as an increasingly expansive advertising platform (Brand, Display, Network, Video, Search) with a Subscription business that is on a path to stabilization and an exciting new unified ad platform (AOL ONE) set to launch in ‘15.”
On average, the top analyst consensus for AOL on TipRanks is Moderate Buy.
GrubHub Inc (NYSE: GRUB)
The online food ordering and delivery service is expected to release Q4 earnings in early February. Mahaney and Kulkarni forecast revenue of $70.1 million, in-line with the consensus estimate and the company’s guidance. They estimate GAAP earnings per share of $0.07, just below the consensus of $0.08.
The analysts are focusing on the increase in number of active users, or “active diners” on the platform. GrubHub had 4.6 million active diners in Q3, and Mahaney and Kulkarni expect this figure to increase to 4.9 million in Q4. Additionally, Mahaney and Kulkarni believe that the number of “daily active orders” will rise from approximately 173,000 in Q3 to about 197,000 in Q4. The analysts noted that GrubHub’s mobile monthly active users increased an overwhelming 627% year-over-year, but take this figure “with a grain of salt given how young GrubHub’s mobile platform is.”
Mahaney and Kulkarni maintain a Sector Perform rating on GrubHub with a $42 price target. They comment, “GrubHub has emerged as the largest online food takeout & delivery marketplace, with an attractive business model addressing a large market opportunity. While we view GrubHub as a core long-term small cap [Internet] company with likely short-term upside to [estimates], we think risk/ reward is fairly balanced at current levels.”
On average, the top analyst consensus for GRUB on TipRanks is Strong Buy.
RetailMeNot Inc (NASDAQ: SALE)
The coupon website is scheduled to release Q4 earnings on Tuesday, February 10. Mahaney and Kulkarni forecast Q4 revenue of $85.8 million, slightly below the consensus of $86.1 million. The analysts expect GAAP earnings per share of $0.22, compared to the consensus of $0.21.
Mahaney and Kulkarni expect to see decreases in both desktop revenue growth and desktop visit growth. However, they expect to see increases in mobile revenue growth and mobile visits.
Mahaney and Kulkarni reiterate a Sector Perform rating on RetailMeNot with a price target of $19. The analysts noted, “SALE’s fundamentals are being materially challenged near-term, due to several factors – Google algorithm changes, FX, Mobile monetization, and commission pressures… But we view the long-term market opportunity as still well intact and see a business model that should be able to sustain relatively high EBITDA margins (30%+)… Evidence of severe commission pressures could make us Bearish and evidence of real progress against Google and Mobile challenges could make us Bullish.”
On average, the top analyst consensus for SALE on TipRanks is Hold.
Shutterfly, Inc. (NASDAQ: SFLY)
The photo sharing and print website will release Q4 earnings in early February. Mahaney and Kulkarni forecast revenue of $477.3 million, in-line with the company’s consensus. The analysts estimate Shutterfly will post GAAP earnings per share of $2.47, slightly below the consensus of $2.51.
For the fourth quarter, the analysts anticipate 8.3 million orders to be placed on the site; an 8.5% year-over-year increase. This is important to note as “Shutterfly derives more than 95% of its revenue from consumer orders.” Mahaney and Kulkarni also estimate that the average order value will increase 6% year-over-year to $54.91.
Mahaney and Kulkarni reiterate an Outperform rating on SFLY with a $53 price target. They noted, “We believe SFLY’s investments in long-term growth opportunities and & accelerated product offerings continue to expand its addressable market beyond core consumer photo book/greeting cards market. We see a path to margin expansion as current projects drive future revenue growth and new facilities reduce average costs of production & shipping while improving consumer value proposition.”
On average, the top analyst consensus for SFLY on TipRanks is Strong Buy.
Wix.Com Ltd (NASDAQ: WIX)
The website that allows users to create their own web and mobile sites is scheduled to release Q4 earnings on February 11. Mahaney and Kulkarni estimate that Wix will post revenue of $40.4 million, just above the Street’s estimate of $39.8 million. Likewise, they estimate non-GAAP earnings loss per share of ($0.28), just above the Street’s estimate of ($0.30).
Concerning user growth, Mahaney and Kulkarni noted, “Registered user growth has been steadily decelerating but remained robust at 39% Y/Y in Q3. We forecast that Wix can grow Users 37% Y/Y in Q4 to 57.6MM.” Although registered users are growing, Wix derives the majority of its revenue from premium subscriptions. The analysts note that premium subscriptions grew 59% to 1.13 million in the last quarter, and they believe it “can grow another 53% Y/Y in Q4 to 1.21MM.”
Mahaney and Kulkarni maintain an Outperform rating on WIX with a $26 price target. The analysts noted, “WIX remains a relatively risky Buy given the absence of a profitability track record, but we believe the company can begin to achieve sustainable EBITDA profitability by H2:15… We continue to think that Wix is very well-positioned to address the clear and present need for small businesses to create an Online presence that looks professional and functions well across multiple devices… on a small business budget.”
On average, the top analyst consensus for WIX on TipRanks is Strong Buy.
Zulily Inc (NASDAQ: ZU)
The e-commerce company is expected to release Q4 earnings in early February. Mahaney and Kulkarni estimate Q4 revenue of $407 million, just below the consensus of $411 million. Their GAAP earnings per share estimate is $0.14, in-line with consensus.
Mahaney and Kulkarni are focusing on active customer trends in the Q4 report, referring to “those that have made a purchase in the last twelve months.” The analysts expect active customer growth to “decelerate in Q4 to 59% Y/Y, down from 71% growth in the September quarter, to reach 5.1MM.” The analysts noted that total revenue per active customer to be flat. Additionally, the analysts are looking at shipping time, which “improved slightly to 11.6 days in Q3,” but continues to be “one of the most relevant issues for the company over the medium-to-long term.”
Mahaney and Kulkarni maintain an Outperform rating on ZU with a $45 price target. The analysts noted, “At a high level, our Long Thesis is that Zulily is a leading ‘Mom’ brand, with high customer loyalty, great distribution for emerging brands and boutique vendors, and a FCF-efficient, inventory-lite (neg. working-capital cycle) model. We also believe the management team (which we have regarded as one of the best in ‘Net Small Cap Land) is correctly balancing investment and growth priorities.”
On average, the top analyst consensus for ZU on TipRanks in Moderate Buy.
Overall, Mark Mahaney has a 66 percent overall success rate recommending stocks with a +23.5 percent average return per recommendation.
Rohit Kulkarni has a 56 percent success rating recommending stocks based on 16 total ratings, with a +2.3 percent average return per recommendation.
Image credit: Coolcaeser, Wikimedia
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