It looks like the party might be over for online advertising companies like Google Inc (NASDAQ:GOOGL) (NASDAQ:GOOG), Facebook Inc (NASDAQ:FB) and LinkedIn Corp (NYSE:LNKD). Or is it? Susquehanna analysts believe the sudden bearishness on these companies and their peers is far too much, and they remain positive on them in spite of Wall Street’s fallen sentiment.
Selloffs across the board
In a report dated April 9, 2014, analysts Brian Nowak and Michael Costantini note that the entire online advertising sector outperformed in 2012, 2013, and the first two months of this year. However, when March hit, everything went downhill.
They expect the sector to show continued choppiness until these companies start reporting their latest earnings report. Yahoo! Inc. (NASDAQ:YHOO) reports on Tuesday, while Google Inc (NASDAQ:GOOG) is scheduled to report on Wednesday. The Susquehanna team doesn’t see any “fundamental rationale” for the selloff within the sector.
Remaining bullish on Google
Going into next week’s earnings from Google Inc (NASDAQ:GOOGL) (NASDAQ:GOOG), continue to expect “outsized” growth in Google Websites and positive revisions at the top and bottom lines. They see gains in mobile share, Product Listing Ads and early benefits from YouTube and Enhanced Campaigns as being the main drivers for growth in Google Websites.
They say that these things, combined with TAC leverage, which they have seen over the last two quarters for the first time since 2011, will drive upside to Google Inc (NASDAQ:GOOGL) (NASDAQ:GOOG) shares. The analysts also say Wall Street’s expectations are low, as estimates haven’t moved since the consensus beat in the fourth quarter earnings report. They’re now estimating that Google will beat revenue estimates by 1% and earnings per share estimates by 5%.
They kept their Positive rating and $700 a share price target for Google Inc (NASDAQ:GOOGL) (NASDAQ:GOOG).
Facebook expected to continue beating on ads
The Susquehanna team also expects Facebook Inc (NASDAQ:FB) to beat earnings estimates. In fact, their estimates for first quarter ads are 5% above Wall Street’s. The analysts have spoken with various advertising agencies and say that Facebook’s traction with major brands continues to grow, as more brands spend more on the social network for cost-effective reach. They have also seen signs that mobile sponsored stories and app installations continued to grow “healthily” during the first quarter.
In addition, they said SMBs are scaling well and that comparisons with the first quarter are easy, as they remain quite a bit above Wall Street. The analysts are so bullish on Facebook Inc (NASDAQ:FB) that they believe their estimates may even end up being conservative. They’re expecting the social network’s gross and incremental EBITDA margins to rise steadily throughout this year.
The Susquehanna team believes the recent pullback in Facebook Inc (NASDAQ:FB) makes this an attractive entry point to investors. They maintain their Positive rating but cut their price target from $72 to $69 per share because of share count dilution from the WhatsApp and Oculus acquisitions.
Upside seen to LinkedIn Corp (LNKD)
The analysts also see upside to LinkedIn Corp (NYSE:LNKD)’s results, saying that the company has “the most juice in the space.” They expect the social network’s Talent Solutions and Marketing Solutions to drive upside to the company’s numbers. They also believe Sponsored Content will drive upside for revenues and margin expansion throughout the company in the second half of this year. They believe this will set LinkedIn up for “material outperformance,” pushing it back toward their $280 a share price target.