Alphabet (GOOGL) and Amazon.com (AMZN) report Q3 results tonight after the close. Their combined market capitalizations are nearly $1 trillion, almost 20% of the weight of the Nasdaq 100 (NDX). The two companies have gained nearly $120 billion in market cap in 2016 alone ($32 billion for GOOGL and $85 billion for AMZN).
The options market is predicting about a 5% move in either direction for GOOGL (4qtr avg one day post earnings move has been about 4%), or about $30 billion in market cap in either direction. On Tuesday in this space I had some thoughts on the concentration of the Nasdaq 100 (Breadth Mints – QQQ).
The options market is predicting about a 7% move in either direction for AMZN (4qtr avg one day post earnings move about 4%), or about $27 billion in market cap in either direction.
Both GOOGL & AMZN have 49 sell side analysts covering the stock, for the most part the same analysts cover both. Amazingly, GOOGL has 44 Buy ratings, 4 Holds and only 1 Sell. As for AMZN, there are also 44 Buy ratings, 5 Holds and no Sells.
While GOOGL’s market cap is $166 bil greater than AMZN’s $390 billion, both stocks closed last night just about $822. The average 12 month price target by the analysts compiled by Bloomberg for GOOGL is about $943, or about 15% higher than current levels, and about $933 for AMZN, or about 13.5% higher. The universal optimism for these two stocks is truly astounding.
Investors can justify growth at a reasonable price for GOOGL. It trades 20x expected 2017 eps growth of 18%, which would be the highest growth rate since 2011, on expected accelerating sales growth of 20%. On the flip side, AMZN investors have been conditioned to not value the stock on a P/E basis, but to focus on revenue growth that meaningfully accelerated in 2016 to expected 28% from 20% the prior two years, with EBITDA growth of 44% aided by the growth and margin profile of AWS and the creeping margins on retail.
AMZN is likely the one where investors shoot first and ask questions later with the stock up 72% from its 52 week lows made in February. The stock is sitting on the uptrend that has been in place from those lows, with the next real technical support level at $750, down about 9%:
From a valuation and technical perspective, investors are likely to be a tad more patient with GOOGL as the stock is up about 6% on the year and 25% its 52 week lows made in late June to its new all time highs made just this week. The stock should find healthy technical support near its April earnings gap level of $780 and its July earnings gap level near $760:
We will be sure to follow up with some options trade ideas for those seeking overlays of existing positioning, or with a directional inclination into the print. Stay tuned.