Amazon earnings need to keep FANG sharp

Wall St’s ‘FANG’ is back for another bite.

Facebook last night kept up the pace of upside quarterly surprises set by Netflix and Google last month. Allowing another ‘A’ for Apple, it’s turning into a better-than-expected earnings season for Big Tech.

More broadly, even as the last quarter on Wall St. is looking set to be one of the strongest in years, we find Technology earnings beating out all S&P 500 industrial segments. 90% of Q4 tech earnings have beaten average forecasts compiled by Thomson Reuters, compared to the next best performers Materials (most importantly, mining) and Health Care, with both showing a 79% be rate so far.

This matches the pattern of tech shares compared to the market as a whole seen last year. Furthermore, the heavy lifting in terms of the ‘highest-tech’ tech shares keeping the broader market aloft is also continuing in 2017, so far.

This shows in the little-known SV150 Index, which tracks 150 of the Bay Area‘s largest Internet and electronics-focused groups. The gauge is up 4% in 2017, the S&P, up 1.8%. Naturally, Apple, Google, Facebook and Netflix are the index’s biggest components, though Seattle-based Amazon is not included.

Misgivings around the quality of the industry’s earnings—particularly over-reliance on non-GAAP based valuation and reporting—have again been swept aside, at least for now. (Such concerns are quite cyclical). This suggests risks to the broader market’s current rise are fading too, with more than two thirds of tech reports now out.

However, key names that have yet to report could still put pressure on sentiment if their earnings disappoint.

Ahead on Thursday, the last true FANG member, Amazon, will unveil Q4 performance.  

It is expected to report a rise in fourth-quarter profit and revenue to $1.4 per share, up 39% and $44.6bn, up 24.8%.

Amazon, like its fellow Internet giant, Facebook, last quarter warned investors about potential detriments to revenues, in its case from higher spending ahead of the crucial holiday season. The company shipped more than 1 billion items worldwide during that period, and investors will be keen to see if investments in warehouses and content paid off. Analysts expect Web Services and Prime to continue to grow this year, and for the former to remain Amazon’s most profitable division.

Like Facebook though, there could be a case of nimble expectations management here, which is in fact a wider theme for the entire sector. FB was able to post an unexpected ‘beat’ on both sales and profits on Wednesday night, despite warning of a hit to sales due to plans to reduce ‘Ad load’ on web pages.

For both Amazon and FB, another key theme is video content. The social network is at an earlier stage in it’s video endeavours, aiming to grab a slice of the higher-margin ad revenues available in the format compared to static web ads. Amazon’s more established efforts to win streaming video market share, amid heavy investments, will again be a major watch point. So will any hints on performance of the group’s push into voice-enabled search and Internet of Things, including the Echo range and API licensing in those spheres.

Earnings by wearable camera maker GoPro Inc. are also in focus on Thursday night, not least because the group’s stock has kicked off the year in typically volatile fashion.

GPRO has easily outperformed all other groups mentioned here with an erratic 25% rise since 1st January, though the stock is still 90% lower than its October 2014 peak near $100.

To be fair, this is a somewhat different GoPro than the one that garnered a reputation for being a stock for sensation seekers, just as much as a maker of products for the same. It has gone through a round of restructuring, including job cuts, to help achieve its goal of returning to profitability in 2017.

A rise in quarterly revenue is widely forecast, as demand for its latest products picks up speed, but profit will take a hit, as GPRO is expected to incur charges relating to the revamp. Revenues are forecast to jump 30% to $571.45m year-on-year. EPS, excluding all kinds of GAAP items, is seen at 21 cents, according to Thomson Reuters. On a GAAP basis, investors are forecast to face a 1 cent loss in Q4.