Citi Says Internet Investors Are 'Perplexed,' Thinks Amazon And LinkedIn Have Best Chance To Beat Earnings

Citi analysts said Amazon.com, Inc. AMZN and LinkedIn Corp LNKD may have the greatest opportunity "to produce better than feared Q1 results."

In a client note, analyst Mark May said, "With a strong CY15, including a particularly strong 4Q15 earnings season, followed by choppy equity markets YTD, some mixed Q1 checks, a seasonally slow quarter and other misc. concerns, investors seem more perplexed than normal about what to expect during the 1Q16 earnings season. We think this creates a few opportunities but also portends greater volatility and uncertainty, especially given the still-nervous tone of most investors."

A Few Names In Focus

On Facebook Inc FB, the analyst believes that the "recent warning flags regarding FB's Q1 revenue growth expectations could be overblown, though the stock's recent outperformance could limit upside over the near term."

May highlighted, "At Alphabet Inc GOOGL GOOG, limited topline upside (from SEM checks) and greater near term expense growth have been incorporated into expectations, so these issues should pose less of a risk."

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For eBay Inc EBAY, the analyst noted, "Now that expense estimates have been reset, we see the risk/reward for EBAY as being tilted again ever so slightly in the bulls' favor."

On Netflix, Inc. NFLX, May said, "Although most investors are aware of the potential risk to domestic sub expectations, especially for the Q2 guide, we are hesitant to recommend NFLX ahead of the Q1 report."

Meanwhile, May urged investors to exercise caution heading into the first quarter report of Twitter Inc TWTR.

"For TWTR, we remain concerned about user and engagement growth, and given the stock's valuation and relative outperformance since Q4, we urge caution going into the 1Q16 report," May elaborated.

Ratings

Ratings-wise, Facebook, Amazon, Alphabet and eBay are rated Buy, while Netflix, LinkedIn and Twitter are rated Neutral at Citi.

In addition, the analyst noted that Citi's Internet Index is underperforming the S&P 500 in 2016 with a loss of 5.9 percent versus the S&P 500's flat return and it continue to rank Amazon, Alphabet and Facebook as its top picks.

May concluded, "Internet performance this year has been helped by Internet Media names such as FB, GOOGL and Yahoo! Inc. YHOO, but hurt by the ecommerce and Internet Services names such as AMZN, NFLX, and LNKD."

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