Baird's Big Tech Earnings Preview: Facebook, Alibaba, Twitter And More

By Sarah Roden 

Internet giants Facebook Inc FB, Alibaba Group Holding Ltd BABA, Twitter IncTWTR, and Amazon.com, Inc. AMZN will be posting earnings next week. Colin Sebastian of Baird notes that despite concerns of slow first quarter online spending, Internet advertising, and the sector at large, remains healthy. Sebastian summarizes his estimates for each company and key points to watch ahead of earnings.

According to TipRanks, Sebastian has a 74% success rate recommending stocks with a +16.7% average one-year return per rating. He is ranked in the top 1% of all Wall Street analysts.

Facebook Inc

The social media giant will post earnings on April 27 after market close. Colin Sebastian believes the company will post first quarter revenue of $5.1 billion and non-GAAP EPS of $0.58, slightly below the consensus estimate of $5.25 billion and $0.62, respectively. He models advertising revenue at $4.9 billion, marking a 48% year-over-year increase.

Facebook has impressed investors quarter after quarter with its ability to continue to grow its user base. Sebastian believes the company will post 1.6 billion monthly active users for the quarter, compared to 1.44 billion in the same quarter of last year.

Sebastian describes how new advertising formats and Instagram are driving "strong social spend growth." Instagram rolled out advertising efforts in November, which is proving to be "incremental to ‘core' Facebook spend." The analyst believes that Facebook has "bigger plans for hosted content" and it will "likely command a greater share of traditional TV ad dollars as budgets migrate online."

The analyst also touches on chat bots; Facebook's recently revealed feature that will allow businesses to interact with users over the Messenger platform. Sebastian acknowledges that while the monetization of Messenger and WhatsApp, another Facebook-owned messaging service, is "still a ways off," these new e-commerce efforts "will help bring more businesses to the Facebook platform (along with a greater share of their ad budgets) while increasing time spent across owned and operated properties, a key positive."

Sebastian last reiterated an Outperform rating on Facebook on April 13 with a $120 price target.

Out of the analysts on TipRanks who have rated Facebook in the last 3 months, 90% are bullish, 7% are neutral, and 3% are bearish. The average 12-month price target is $136, marking a 21% potential upside.

Alibaba Group Holding Ltd

Chinese e-commerce giant Alibaba will post earnings on May 5 before market open. Colin Sebastian expects the company to post revenue of $3.53 billion and EPS of $0.60, compared to the overall consensus of $3.56 billion and $0.55, respectively.

In late March, the company announced that it reached $464 billion in GMV, or gross merchandise volume, for fiscal year 2016. Sebastian notes that this figure puts the company "largely in-line" to meet revenues for the fourth quarter of fiscal year 2016. For the upcoming earnings report, Sebastian expects GMV of $118.2 billion, marking a 32% year-over-year increase.

Alibaba has many growth catalysts up its sleeve, according to Sebastian. He describes that about half of China's population lives in rural areas, and Alibaba has a presence in over 12K rural villages with a new focus on investing in logistics in these areas. The analyst points to Tmall Global, Alibaba's business-to-consumer platform, which grew 179% Y/Y in the previous quarter. Lastly, Sebastian describes the company's "strategic investments in foreign logistics-oriented e-commerce start-ups like India's Snapdeal and Lazada in Southeast Asia," which "should provide significant incremental growth opportunity over the long term."

Sebastian currently has an Outperform rating on Alibaba with a $94 price target.

According to TipRanks, 93% of analysts covering the stock are bullish and 7% are neutral. The average 12-month price target is $94, marking a 16% potential upside.

Twitter Inc

Twitter will post earnings on April 26 after market close. Baird analyst Colin Sebastian expects the company to post first quarter revenue of $605 million, marking a 39% year-over-year increase and in-line with the analyst consensus of $608 million.

Twitter has had investors on edge as the company struggles to grow its user base. Sebastian sees "potential for slightly improving [monthly average user, or MAU] trends," modeling 1 million net additional MAUs from the quarter prior. However, he notes that activity on the platform may be strong thanks to election-related tweets and a NFL-streaming deal.

Sebastian summarizes, "Spending on Twitter advertising remains healthy near term, although advertisers continue to express concern over lack of scale vs. other large platforms." He believes this "advertiser hesitancy" will continue until the company can "demonstrate a clearer path to sustained user growth, which admittedly is somewhat of a chicken-or-the-egg dynamic."

Sebastian remains cautious about the social media platform, last reiterating a Neutral rating on the stock with an $18 price target.

According to TipRanks, 44% of the analysts who have rated Twitter in the last 3 months are bullish, 47% are neutral, and 6% are bearish. The average 12-month price target is $25, marking a 46% potential upside.

Amazon.com, Inc.

E-commerce giant Amazon will post earnings on April 28 after market close. Sebastian points to several risks, ranging from risks in retail to cloud-based services, but remains bullish on the company's long-term growth prospects.

Starting with retail risks, Sebastian points out that Amazon faces competitive risks from traditional brick and mortar retailers, other e-commerce platforms, and technology product OEMs, like Apple. He points at eBay as an online competitor and Google as an advertising competitor. The analyst goes on to explain that Amazon "has entered into direct competition with Apple, Barnes and Noble and other sellers of electronic products" thanks to its Kindle. Amazon's cloud platform, AWS, faces competition from the likes of Google and Microsoft, both of which have much larger R&D budgets for these endeavors.

Sebastian currently has an Outperform rating on Amazon with a $710 price target.

According to TipRanks, 88% of the analysts to rate Amazon in the last 3 months are bullish, while 12% are neutral. The average 12-month price target between these analysts is $749.59, marking a 18% potential upside.