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Google, Amazon, Facebook, Twitter, Yahoo: Big Tech Earnings Preview

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Bernstein Research analysts Carlos Kirjner, Peter Paskhaver and Garrett Marks share their expectations for the 4Q13 results of Google Inc (NASDAQ:GOOG), Amazon.com, Inc. (NASDAQ:AMZN), Facebook Inc (NASDAQ:FB), Twitter Inc (NYSE:TWTR) and Yahoo! Inc. (NASDAQ:YHOO).

Google, Amazon, Facebook, Twitter, Yahoo: Big Tech Earnings Preview

In this report we share our expectations for the 4Q13 results of the remaining companies in our coverage and highlight the major issues and questions we think investors should focus on as they analyze the results. Unsurprisingly, revenue growth is a key issue for almost all our companies, although not all revenue growth is the same (e.g. Google Sites vs Network revenues). In addition to revenue growth metrics in general, which are crucial and nearly all that matter for Facebook Inc (NASDAQ:FB) and Twitter Inc (NYSE:TWTR) at this point, we will be looking at the evolution of operating expenses for Google Inc (NASDAQ:GOOG), gross profit margins for Amazon.com, Inc. (NASDAQ:AMZN), Alibaba revenue and incremental margins and core EBITDA margins for Yahoo!.

Google’s earnings preview

We expect Google Inc (NASDAQ:GOOG) to post GAAP revenues of $18.1 billion and adj. EPS of $12.74/share, both materially better than consensus (see Exhibit 1). We believe we are ahead of consensus on revenues because of our bullish view on search, on the continued growth of “Other Revenues,” and on a material acceleration of Motorola’s revenue growth. We believe the key issues investors should focus on during Google’s call and earnings release are the overall revenue growth rate, particularly of Google Sites, and the growth of headcount and opex relative to revenue growth.

Amazon’s earnings preview

We expect Amazon.com, Inc. (NASDAQ:AMZN) to report revenues of $26.0B (vs. consensus of $26.04B) in 4Q13, and gross profits of $7.0B (vs. consensus of $6.7B) (see Exhibit 5). The key controversies for Amazon revolve around the expansion of overall gross and EBITDA profit margins (we are significantly ahead of consensus, in fact in a different galaxy), and 1P margins in particular, as well as whether the rate of fulfillment and technology deleverage will slowdown allowing for operating margin expansion. We believe it will.

Yahoo’s earnings preview

We expect Yahoo! Inc. (NASDAQ:YHOO) to report 4Q13 revenues ex-TAC of $1.2 billion and adjusted EBITDA of $412 million (in line with consensus) and adjusted EPS of $0.44 (vs. consensus’ $0.38), see Exhibit 10. We think our EPS estimate for 4Q13 and expected guidance is materially ahead of consensus because of Alibaba’s impact on earnings on equity interest. The key issues to focus on during the quarter are the evolution of Alibaba’s revenue growth and operating margins, as well as any commentary around Tumblr’s user growth and monetization. We think the impact of Tumblr on the core in 2H14 and beyond is underappreciated.

Facebook’s ‘s earnings preview

We are roughly in line with consensus for Facebook Inc (NASDAQ:FB), and expect it to report 4Q13 revenues of $2.32 billion (versus consensus estimates of $2.34 billion), adjusted EBITDA of $1.41 billion (vs. consensus ~$1.43 billion) and adjusted EPS of $0.26 (vs. consensus’ $0.27) (Exhibit 12). We believe the key issues for Facebook continue to be the evolution of North American ARPU growth as well as any commentary on the early success of Instagram (without cannibalization of newsfeed ads) and video ad growth.

Twitter’s earnings preview

We are miles ahead of consensus on Twitter Inc (NYSE:TWTR) but we do not think it matters because the published consensus is skewed by several estimates that we believe are artificially low. We think it will take a couple of earnings releases for published consensus to have any meaning. We expect Twitter to report revenues of $236 million (vs. consensus of $217 million) in 4Q13, and adjusted EBITDA of $43M (vs. consensus of $23M). We believe the three key issues to focus on in the quarter are: 1) whether user growth will re-accelerate, 2) the growth of North American ARPU in absolute and vs. Facebook and 3) whether international ARPU can close some of the gap with North American ARPU.

Investment conclusion

We rate Google Inc (NASDAQ:GOOG), Yahoo! Inc. (NASDAQ:YHOO), and Amazon.com, Inc. (NASDAQ:AMZN) Outperform. We rate Facebook Inc (NASDAQ:FB) and Twitter Inc (NYSE:TWTR) Market-Perform.

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