This is the week that many top tech investors have been waiting for as we are entering into the fourth-quarter earnings reporting season for the top internet stocks. With valuations stretched, it would certainly seem that any company that does not deliver the goods could face some intense selling. That said, those that hit or exceed numbers, as well as give some positive forward guidance, could see investors bid shares considerably higher.
A new research report from SunTrust Robinson Humphrey previews the upcoming earnings reports and, for the most part, is reasonably bullish as digital advertising continues to grow, and e-commerce also maintains a strong growth trajectory.
The following four stocks are rated Buy by the SunTrust team and will report this week, and the analysts are very positive on each.
Alibaba
This red-hot momentum stock is being bought this quarter by Dan Loeb, who runs Third Point, a New York–based hedge fund. Alibaba Group Holding Ltd. (NYSE: BABA) runs the largest retail marketplaces (Taobao, TMall) and leading B2B sites (Alibaba.com, 1688.com) in China and Lazada in Southeast Asia. It collects revenues mainly from commissions, marketing services, subscription fees, cloud computing and software, as well as other value-added services.
The company has gone beyond e-commerce and developed into a sophisticated new type of conglomerate in the cyber-era with e-commerce as the base for the rest of the four businesses: logistics, finance, data-computing and cross-border infrastructure. Top analysts expect a whopping 24% compounded annual growth rate between now and 2018 for e-commerce in China.
The SunTrust team noted this as the company is expected to report Thursday:
Our higher revenue reflects robust Singles Day performance, while lower EBITDA reflects full consolidation of Cianiao and increased investments in New Retail and int’l expansion. Higher investments are a near/medium-term head wind to margins, but we believe the company is operating from a position of strength, with ~80% share of online sales in China and a massive global opportunity ahead
The SunTrust price target for the shares is $240, and the Wall Street consensus target is $215.22. The stock closed trading on Monday at $203.01 a share.
The huge social media leader has continued to post gigantic numbers, and the fourth quarter should be no exception. Facebook Inc. (NASDAQ: FB) operates as a mobile application and website that enables people to connect, share, discover and communicate each other on mobile devices and personal computers worldwide.
Its solutions also include Instagram, a mobile application that enables people to take photos or videos, customize them with filter effects, and share them with friends and followers in a photo feed or send them directly to friends; Messenger, a messaging application for mobile and web on various platforms and devices, which enable people to reach others instantly, as well as enable businesses to engage with customers; and WhatsApp Messenger, a mobile messaging application.
The SunTrust analysts remain very bullish on the company, which is expected to report Wednesday. The report noted this:
We expect Facebook to post strong fourth results on 1/31, driven by continued improvement in monetization and user growth across both Facebook and Instagram. Increased engagement through the mix shift of ad units to video and carousel formats should drive the results. However, aggressive hiring to address content and ad quality issues is likely to cause fiscal year 2018 operating expense guidance to be reiterated rather than improved.
SunTrust has a $240 price target for the stock. That compares to the posted consensus target of $212.52. The shares closed trading on Monday at $185.98 apiece.
eBay
This top internet company has long been rumored to be in play as a takeover target. eBay Inc. (NASDAQ: EBAY) operates e-commerce platforms that connect various buyers and sellers worldwide. Its platforms enable sellers to organize and offer inventory for sale, and buyers to find and buy it virtually anytime and anywhere.
The company’s Marketplace platforms include its online marketplace at ebay.com and the eBay mobile apps, as well as StubHub platforms that comprise its online ticket platform at stubhub.com and the StubHub mobile apps, which enable fans to purchase tickets to the games, concerts and theater shows. Its Classifieds platforms include a collection of brands, such as Mobile.de, Kijiji, Gumtree, Marktplaats, eBay Classifieds and others that offer online classifieds and help people find whatever they are looking for in their local communities.
While not pounding the table, the SunTrust team are positive into the print on Wednesday and said this:
We maintain a BUY rating into the fourth quarter results and expect to see in line results, showing that progress on initiatives started 2 years ago to revive top-line growth through improvements in structured data, machine learning, user experience and merchandising, continue.
The $46 SunTrust price target is well above the posted consensus estimate of $40.58. The shares were last seen trading at $40.80 apiece.
Shutterfly
This stock has been on fire since late last year, and it is another SunTrust favorite. Shutterfly Inc. (NASDAQ: SFLY) is an e-commerce company that enables consumers to store, share and create photo-related merchandise, such as photo books, personalized calendars, greeting cards and numerous other products. The company operates Shutterfly, Tiny Prints, Wedding Paper Divas, BorrowLenses.com and ThisLife.
Shutterfly also operates an enterprise printing business and is based in Redwood City, California, while operating manufacturing facilities in Arizona, Minnesota and South Carolina. The SunTrust analyst remain positive on the company, which is expected to report its results after the close today, and noted this:
We believe the enhanced user experience and richer product offerings will prove effective in re-engaging customers on the new Shutterfly.com platform, and driving in line results. The stock has performed well since mid-Nov (+30% vs. IWM +10%), due to a combination of tax reforms and attractive valuation.
The SunTrust price target is $60. The posted consensus target is $53, and the shares closed most recently at $52.98.
These four red-hot internet companies all will report earnings this week. While it can be risky buying shares in front of earnings, it can pay off handsomely. It may make sense to buy partial positions and see exactly how the market responds, especially given the current weakness.
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