Commentary

What Wall Street Says About Tech Company Earnings -- They Report This Week

Amazon, Facebook and Google report earnings on October 29. Analysts are looking for these key signals to make a difference.

RBC Capital Markets Analyst Mark Mahaney believes investors under-appreciate Facebook Marketplace. The analyst estimates Facebook has more than 1 billion monthly active users, including Messenger and WhatsApp. That’s about two times more than Alibaba, two times more than eBay, and 12 times more than Craigslist.

Mahaney points to early-stage ad revenue from Sponsored Ads and Boosted Listings -- commercial signals like queries that generate a signal that can be used to target ads across all Facebook properties. He also says engagement is high and more frequent, and there is a potential to eventually charge listing, and final value and payment processing fees.

RBC sees Facebook Marketplace generating up to $2.8 billion in 2024 revenue by applying a “Light Marketplace” approach,” he wrote in a research note published Monday.

Even more interesting, he points to Instagram Reels. “TikTok’s position as the most downloaded non-gaming app worldwide YTD tells us that algorithmically driven mobile-first short-form UGC video is what’s hot,” Mahaney wrote. “Instagram Reels is FB’s answer, and we believe the product is reasonably competitive.”

He writes about a potential for higher engagement on Reels, compared with TikTok. The average time spent on TikTok is now more than one hour per day -- up 35% versus Facebook, trailing only YouTube. The possibility of a TikTok ban or holding back product development in the wake of a challenging acquisition may create an opportunity.

Mahaney experts Amazon to report $92.1 billion in revenue for the third quarter in 2020, about $11.3 billion from Amazon Web Services. With Prime Day moving to the fourth quarter in 2020, the analyst sees the potential for a modest upside, “with the Street’s GAAP Operating Income estimate of $5.9B (5.1% margin) as reasonable.”

Analysts will be looking for details on cloud services and Amazon’s “$2B spend — did the company spend at expected levels and how much more does AMZN need to spend given the resurgence in COVID cases.”

Amazon’s ecommerce business emerged as a structural winner, but Mahaney is looking to see whether cloud services also won from this crisis. He wrote that Amazon is pursuing capacity for an expansion of its data centers in Europe, Asia, and the U.S. based on ground purchases, datacenter leasing, and fiber procurement.

Revenue from the Amazon Ad platform proved resilient in the quarter ending in June. “We estimate AMZN’s Ad revenue growth to be ~40% in Q3 (largely consistent with Q2),” he wrote. “We estimate NA Retail Revenue of $57.2B, up 34% Y/Y or 38% ex-WFM/Physical Store sales, and Segment Operating Income of $1.03B.”

eMarketer also released data on Google ahead of its earnings this Thursday. The company estimates that worldwide, Google will generate $98.57 billion in net digital ad revenue this year, up 1.8%. That gives Google a 29% share of the worldwide digital ad market, down slightly from 2019. Facebook is second with a 23.2% share. 

This year, amidst scrutiny from the U.S. Department of Justice for being a monopoly, Google will remain the dominant player in worldwide search ad spending, with a 57.8% share. Google's search revenue is estimated to come in at $81.24 billion in 2020.

Its worldwide display business will grow slightly to $17.33 billion, giving it a 9.6% share. That puts Google at No. 3 in the world behind Facebook and Alibaba, eMarketer estimates.

In 2020, per eMarketer, Google will capture 29.6% of the worldwide mobile ad market, with $72.78 billion in net revenue.

Perhaps these numbers are part of the reason why the DOJ asserts Google has “used anticompetitive tactics to maintain and extend its monopolies in the markets for general search services, search advertising, and general search text advertising — the cornerstones of its empire.”

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