1Q15 shook things up with unexpectedly weak digital ad spending and an unexpectedly strong shift to the enterprise cloud. This quarter, we expect digital ads to get back on track in the US against somewhat muted expectations, with the cloud shift continuing to pick up steam. Companies with international exposure, particularly to Europe and/or China, could see hits to both top and bottom lines. As a result, smartphone sales could be a tad light, as could traditional IT. We believe 2Q could be a real turning point for wireless competition, with TMUS taking share from the VZ/T duopoly.
Digital ads to pick up from a weak 1Q15. Analysts are expecting just over 11% sales growth from GOOG – it should be able to beat that despite FX headwinds, with good news on CPC. FB will take a big hit on FX, but consensus sales estimates for 37% growth seem to expect it – OPEX is the wild card which could make or break the quarter. TWTR has the benefit of weak expectations – look for them to beat the 54% sales growth bogey easily – and can talk up strategic moves on the call.
Streaming to stay on a roll. We expect NFLX to continue the 1Q15 mojo with strong sub #s and sales growth. Meanwhile, weak ratings, a weak scatter market and an apparent new willingness to negotiate streaming deals suggest possible disappointments from traditional ad driven TV.
Smartphone sales soften. AAPL is still surfing the success of the iPhone 6 and expectations are still not high enough. Still a 4th consecutive blowout will not help the stock much, as the coming 6S faces a killer compare for FY16. The Android ecosystem is still licking its wounds – all the growth is from emerging market brands. QCOM is still a Q or 2 from regaining its mojo. Chip winners from 1Q15, ARMH and SWKS, may not get a repeat.
Enterprise cloud shift is accelerating. AMZN and MSFT will make the most hay this Q, but GOOG is making strides. SaaS leaders will show strong – CRM, WDAY, DATA, ADBE, etc. Meanwhile, most traditional IT vendors – e.g. IBM, EMC, etc. – are at risk, exacerbated by international exposure.
TMUS takes subs from VZ/T. TMUS already revealed 2.1 net adds for 2Q15, doubling its growth in 1Q. This could show in slightly higher churn for the other 3 carriers, who could see ARPU hits and unexpected CAPEX as well. Wireless competition should be good for tower stocks.
AMZN to lead a strong e-commerce Q. AMZN’s excellent 1Q15 in the face of a strong dollar portends more of the same, with resurgent sales growth and, perhaps, even an uptick in margins. EBAY seemed distracted by the pending PYPL spin during 1Q, but could have left a little in the tank to show a bit of strength ahead of Monday’s distribution.
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