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Citi Cuts Amazon, NFLX, Google Price Targets On Stock Compensation

Citigroup slashed its price target on LinkedIn and also lowered its targets on shares of  Amazon.com ( AMZN ), Alphabet ( GOOGL ), Facebook ( FB ) and Netflix ( NFLX ) in a report that takes a close look at the earnings dilution from stock compensation grants. Tech companies, and some others, typically report both non-GAAP (generally accepted accounted principles) earnings — which exclude stock grants to employees, among other items — and earnings under GAAP, which include everything. Financial analysts typically provide non-GAAP estimates for quarterly results, and those numbers frequently get more play in quarterly earnings stories in the business press. “We are adjusting our models and price targets to better reflect the impact of stock-based compensation (SBC),” said Citigroup analyst Mark May in the research report. “Some may say this is a bear market issue, but we believe it is a necessary change that is long overdue.” Citigroup cut its price target on LinkedIn ( LNKD ) to 130 from 194. It lowered Amazon’s price target to 760 from 780, Google-owner Alphabet’s target to 900 from 924, Netflix to 116 from 121, and Facebook to 133 from 134. Citigroup maintained buy ratings on Amazon, Facebook and Google. It has neutral ratings on LinkedIn and Netflix. In morning trading on the stock market today , LinkedIn stock was near 115, Amazon near 597, Alphabet near 763, Netflix near 104, and Facebook near 115. All were up a fraction except Netflix, which was up 2%. The report also looks at the stock-based compensation of eBay ( EBAY ), Twitter ( TWTR ) and Yahoo ( YHOO ). “While most (investors) view Twitter as having the highest stock-based compensation ratio, LinkedIn’s grants as a percentage of revenue are higher than Twitter, and LinkedIn saw this ratio increase last year,” said the report. “While most view Amazon as having high stock-based compensation, it actually ranks near Netflix as among the lowest. Facebook ranks high, but grants declined last year, and its revenue growth, profitability and stock price performance provide important offsets. “The impact of stock-based compensation provides additional reason to remain cautious on LinkedIn and Twitter. “Unlike some people, we do not think stock-based compensation should be treated as a cash expense, mostly because it is in fact not a cash item. Instead, we account for it consistent with what it is — an ongoing source of dilution to equity holders.” According to Citigroup, on a percentage of revenue basis, the company with the highest stock compensation grants in 2015 was LinkedIn, followed by Twitter, Yahoo, Facebook, Google, eBay, Amazon and Netflix, respectively.

Amazon Grows Push-Button E-Commerce Empire

Push a button, get some toilet paper. That’s the idea behind Amazon.com ( AMZN ) Dash buttons , which for Amazon Prime members will ship a range of products to the doorstep of American households with the push of a button — free two-day shipping and all. Thursday, Amazon announced that it’s adding a bevy of new products to its line of Dash buttons, bringing the total to “more than 100,” according to a press release. The new merchandise includes things like coffee, beauty products, and yes, condoms. “The consumer packaged-goods companies are interested in anything that they can do to grow,” Scot Wingo, executive chairman of ChannelAdvisor, told IBD in a telephone interview Thursday morning. ChannelAdvisor works with third-party sellers on a range of e-commerce websites such as Amazon.com and eBay ( EBAY ). Wingo says the consumer packaged-goods firms aren’t getting more sales in brick-and-mortar stores and have looked to e-commerce to boost stagnant revenue. And Amazon — the ever-innovating Seattle-based firm — is trying to capture more dollars that households spend. Though Amazon did not disclose the exact number of Dash buttons sold, or the revenue said buttons generated (which is typical of the tight-lipped company), it did say that Dash orders have grown by more than 75% in the last three months and now take place about once every minute. Wingo called those numbers “interesting.” “Peak Dash button will be in the mid-hundreds — the 200 to 300 range. From there, we’re likely to see Dash functionality integrated into more and more products, like the Brita filter Amazon has already announced.” Amazon’s new additions to the Dash line include Energizer, Arm & Hammer cat litter and Peet’s Coffee, among others. When asked about rivals such as eBay and Wal-Mart ( WMT ) tackling a similar program, Wingo said that it wasn’t likely anytime soon. “Amazon is on version-nine-thinking, and the other guys are on version two,” he said. There are already rumors swirling about the second generation of Dash buttons following Dave Zatz’s discovery , through regulatory filings, that it may rely on Bluetooth. The current version connects to the web via Wi-Fi. Wingo says that the Bluetooth implementation could mean it would connect to Amazon Echo , the firm’s line of “smart” speakers that include Amazon’s virtual assistant Alexa. “It may mean the intersection between Dash and Echo, with more verbal commands to use Dash buttons,” Wingo said. ITG Investment Research analyst Steve Weinstein released a research note Thursday which said that Amazon is on track to a “modest” revenue beat in Q1. The company has also been criticized for the amount of cardboard it generates, along with other e-commerce rivals. Amazon stock was down a fraction to 597 in early afternoon trading on the stock market today . The company has an IBD Composite Rating of 78, where 99 is the highest.