MKM Partners’ Managing Director Rob Sanderson provides a preview for Yahoo! Inc. (NASDAQ:YHOO), Facebook Inc (NASDAQ:FB), Google Inc (NASDAQ:GOOG), and Amazon.com, Inc. (NASDAQ:AMZN) earnings.
The week ahead will set the tone for Internet earnings season and perhaps for the broader sector for the next several months. Yahoo! Inc. (NASDAQ:YHOO) will report on Tuesday, but Facebook Inc (NASDAQ:FB) on Wednesday and Google Inc (NASDAQ:GOOG) and Amazon.com, Inc. (NASDAQ:AMZN) on Thursday are the bigger focus for investors.
Thoughts ahead of Yahoo
Expectations are low for results from core Yahoo! Inc. (NASDAQ:YHOO) in Q4. Enthusiasm for Alibaba is high and growing. We do not think either of these conditions will change on the Q4 report.
Our view has not changed:
On Alibaba: Bullishness for Alibaba is deserved. Online retail in China is one of the largest, open-ended opportunities in any sector and Alibaba has the strongest position, by far. Yahoo! Inc. (NASDAQ:YHOO)’s 24% stake could end up being worth more than the current market cap of the company.
On core Yahoo: Conditions for turnaround appear to be in place. We think financials turn in next 2-4 quarters. We forecast a return to growth in the Display Ad business in 3Q14, boosted by Tumblr monetization ramp. 4Q14 is the first quarter of organic growth for this business in our forecast.
Facebook has the potential for surprise
Concern over the end to ad load increases (a key driver of revenue growth acceleration) has eased through the quarter. This potential issue will face its first test.
After a post-quarter down-trend, Facebook Inc (NASDAQ:FB)’s stock has rebounded 21% from Nov. lows (vs. NASDAQ up 3%). Not everyone is convinced the company can manage this in the near term. Short interest is up 35% from prior to Q3 report to 42mn shares.
The key questions regarding the quarter are:
How much has ad load driven recent momentum in revenue growth? How much did management. actually curtail ad load increases? How quickly can prices increase and fill this hole?
While we don’t currently have a rating on Facebook Inc (NASDAQ:FB)’s stock, we think there is a strong story on pricing, but are not confident this will not cause a near-term hiccup vs. expectations.
Google has the most interesting news to discuss
Nest opens a potentially giant market in the digital home. Google Inc (NASDAQ:GOOG) has made the most successful “big-bets” of any company in the space (YouTube, Android).
The transition to PLAs appeared to have turned a corner in Q3. We think Google Inc (NASDAQ:GOOG)’s Enhanced Campaigns will have a greater impact on the business as it could help to narrow the pricing gap between mobile and desktop CPCs.
Video continues to be a big driver and we expect another big year for ad dollars flowing into Internet video.
There is not much controversy on Amazon
Guidance for the quarter was thought to be conservative, calling for 17.5% growth at the midpoint vs. 26% growth in Q3.
Consensus is in the upper-end, calling for 22.5% growth.
Acceleration in Prime member growth and the PS4/ Xbox One game console launches should be good tailwinds for Amazon.com, Inc. (NASDAQ:AMZN).
