Bernstein Research analysts Carlos Kirjner and Peter Paskhaver have shared their third quarter expectations and major issues and questions that investors should focus on for a few of the important internet companies like Google Inc (NASDAQ:GOOG), eBay Inc (NASDAQ:EBAY), Yahoo! Inc. (NASDAQ:YHOO) and Netflix, Inc. (NASDAQ:NFLX).
Google search a higher margin segment
Google Inc (NASDAQ:GOOG) website revenue is expected to be around $9.07 billion, an increase of 17.4 percent year on year on a reported basis and 18.3 percent on an F/X neutral basis. Google Search is the higher margin earning segment for the company and largest contributor of revenue. Bernstein analysts noted that a slow decline in growth rate of Google sites and indirectly of search advertising revenue is the most important element of the thesis. Analysts expect that operating margins will come in at $3.69 billion for Google Core on reported basis or an increase of 13 percent year over year.
Motorola is expected to slow down its losses in the next twelve months. For the third quarter, it is expected to lose $371 million, compared to $527 million a year ago, on revenue of $1.2 billion. Motorola’s revenue and profits trail might present a useful indication of the potential for the MotoX phone.
PayPal margins a worry for eBay
For eBay Inc (NASDAQ:EBAY), marketplace user growth rate has gained for the last 15 quarters, to 14.2 percent in the second quarter of 2013. Analysts believe that the total number of incremental active users for PayPal and Marketplaces have increased at a much faster rate than marketing spend. This trend suggests that increase in the number of users is a result of diligent and long sighted effort. Analysts are expecting further increase in Marketplaces user growth “despite harder comps,” to 15.5 percent in the third quarter.
Margins contributed by PayPal have declined year on year by large over the past three quarters. Further, PayPal is expected to post contribution margin of 22.5 percent, a decline of 6 basis points year on year and a 46 basis points sequential decline.
Alibaba’s numbers will be worth watching
At Yahoo! Inc. (NASDAQ:YHOO), revenue ex-TAC for the third quarter is expected to be $1.094 billion compared to the consensus estimate of $1.082 billion. Adjusted EBITDA is expected to be around $365 million compared to the consensus estimate $346 billion. Adjusted earnings per share is expected at $0.36 per share compared to $0.33 per share. Earnings from equity interests are expected to be around $243 million. Alibaba’s report of profit and earnings will be an event to watch.
Netflix to Underperform
For Netflix, Inc. (NASDAQ:NFLX), Bernstein Research analysts are expecting a revenue of $1.100 billion, and GAAP EPS of $0.45 per share, compared to the consensus estimate of $0.48. As net income of Netflix is very small, minor variations in operating income and tax rate will have a disproportionate impact on the reported earnings per share.
Analysts rate Google Outperform with a 12-month target price of $1000, eBay Outperform with a 12-month target price of $66, Yahoo! Market-Perform with a 12-month target price of $30, and Netflix Underperform with a 12-month target price of $180.