Canaccord Genuity's Q4 FANG Earnings Preview

Netflix, Inc. NFLX gave a thumping start to the fourth-quarter FANG reporting season, with stellar subscriber growth and in-line earnings. More importantly, the company's first-quarter outlook for earnings, revenues and subscriber additions were all notably above Street estimates, sending its stock up by 10 percent.

Ahead of the results, analysts were wary as to whether Netflix stock is fully valued, with Canaccord Genuity analyst Michael Graham raising this doubt in a Jan. 21 note.

Here are the key Q4 numbers from the streaming platform:  

Q4 Statistics

• EPS: 41 cents vs. 15 last year; consensus 41 cents. 
• Revenue: $3.29 billion vs. $2.45 billion one year ago; consensus $3.28 billion.
• Net subscriber adds: 8.33 million vs. street estimate of 6.39 million.

Q1 Outlook

• EPS: 63 cents vs. 56 cents last year; consensus 41 cents.
• Revenue: $3.69 billion vs. $2.45 billion one year ago; consensus $3.49 billion. 
• Net subscriber adds: 6.35 million vs. street estimate of 5.01 million. 

When The Rest Of FANG Reports 

• Facebook Inc FB: After the close on Wednesday, Jan. 31.
• Alphabet Inc GOOGL(GOOG): After the close on Thursday, Feb. 1. 
• Amazon.com, Inc. AMZN: After the close on Thursday, Feb. 1. 

Comfortable With Estimates, Price Target For Facebook

Facebook seemed to receive the seal of approval from Canaccord Genuity, with Graham expressing comfort with the firm's earnings and revenue growth estimates of 58 percent and 41 percent, respectively. The firm is also comfortable with its $230 price target for the shares of Facebook, suggesting roughly 23-percent upside from current levels. On fundamentals, Graham said moderation in ad load could be more than offset by pricing and contribution from Instagram. The analyst outlined the following as important themes for Facebook in 2018: 

• Slowing ad load, pressuring revenues and ad margins.
• Recently announced news feed changes affecting time spent on the platform.
• Expense growth trending lower than the company's guidance.

See also: Cramer: Brand Loyalty To FANG Companies As Strong As Ever

Consensus Q4 Estimates

• EPS: $1.95 vs. $1.41 one year ago.
• Revenue: $12.54 billion vs. $8.81 billion one year ago.

Following the release of Facebook's better-than-expected Q3 results on Nov. 1, the stock fell about 2 percent, dragged by concerns over slowing ad growth.

Gross Margin A Worry For Google

Google's Q4 has the potential to deliver the lowest gross margin in memory in the fourth quarter, given the growth of traffic acquisition costs and more seasonal hardware-related other costs of goods sold, said Canaccord's Graham. The analyst said he expects solid top-line performance, and estimates 23.4-percent revenue growth in core properties.

Important Stories For 2018:

• Core revenue growth is expected to exceed 20 percent, although staying close to this level.
• Continued gross margin contraction.

Consensus Q4 Estimates

• EPS: $10 vs. $9.36 one year ago.
• Revenue: $31.86 billion vs. $26.06 billion last year.

After slipping below the psychological resistance point of $1,000 a few sessions ahead of the release of Google's third-quarter results, the stock took off solidly in reaction to the earnings report on Oct. 26. The shares added 4.2 percent in reaction to the earnings.

Amazon's Revenue Strength To Carry The Day

Secular and seasonal strength on the revenue front should carry the day for online retail behemoth Amazon, Graham said. But the firm remained cautious on the Q1 consensus earnings per share estimate, which assumes a 3.1-percent domestic operating margin. Margins have been contracting year-over-year in 2017.

Important Stories For 2018

• Revenue growth remaining high.
• AWS to be pressured by competition from Microsoft Corporation MSFT's Azure.
• Overly optimistic 2018 and 2019 consensus earnings per share estimates, given the contracting gross margin trend.

Consensus Q4 Estimates

• EPS: $1.84 vs. $1.54 one year ago.
• Revenue: $59.81 billion vs. $43.74 billion last year.

Following the release of Amazon's Q3 results on Oct. 26, the stock jumped over 13 percent, re-entering $1,000-plus territory.

Stock Performance

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