The U.S. dollar continues to strengthen, and it will impact the revenue and earnings of the U.S. Internet companies. Nomura analysts Anthony DiClemente and Ron Zember said in a research note that among Internet companies, Google Inc (NASDAQ:GOOGL) (NASDAQ:GOOG) and Facebook Inc (NASDAQ:FB) have the largest exposure to currency fluctuations. Analysts said this kind of a sudden surge in the dollar index was unseen since 2010.
Welcome to our latest issue of issue of ValueWalk’s hedge fund update. Below subscribers can find an excerpt in text and the full issue in PDF format. Please send us your feedback! Featuring hedge funds avoiding distressed china debt, growth in crypto fund launches, and the adapting venture capital industry. Q3 2021 hedge fund letters, Read More
Nomura cuts its price target on Google
Google has officially stated that about 10% of its revenue comes in the form of British pound. Nomura says this level of exposure suggests a 2.7% headwind in the fourth quarter compared to last year. Google has been tight-lipped about its exposure to the rest of the world. But analysts say it has a “blended exposure” to the Yen, Canadian dollar, Australian dollar, Euro and Brazilian real.
Google usually hedges out part of its currency headwinds at the operating income level. The research firm said that investors should focus on forex-neutral revenue growth in Q4 when the company reports its next quarterly results. Due to currency headwinds, Nomura has reduced its Q4, 2014 and FY2015 estimate for Google. The research firm now expects $14.6 billion in Q4 revenue, down from the previous projection of $15.1 billion. Nomura has lowered the FY2015 revenue estimate from $64.4 billion to $61.9 billion. The research firm also reduced its price objective on the stock from $650 to $640.
Facebook doesn’t have a formal currency hedging program
Facebook has already factored forex headwinds into its Q4 guidance. But Nomura is forecasting an even bigger headwind for April-December period of 2015. Euro has declined about 7% between July and September. But the weakness in the European currency didn’t have a big impact on Facebook’s Q3, 2014 results because most of the decline in Euro happened towards the end of the quarter.
Unlike Google, the social networking giant doesn’t have a forex hedging program. Nomura’s Q4 revenue estimate for Facebook is in line with the consensus. But it has reduced the FY2015 revenue and EBITDA estimates. The research firm now expects Facebook to generate $17 billion in FY2015 revenue, down from the previous estimate of $17.13. Nomura analysts have reduced the adjusted EBITDA estimate from $10.23 billion to $10.16 billion.