By Tomi Kilgore
Truist analyst Youssef Squali lowered his price targets and revenue estimates on some internet giants, saying they aren’t immune to the negative effects of a surging U.S. dollar and slowing economy.
Squali said that while he believes Amazon.com Inc. /zigman2/quotes/210331248/composite AMZN -3.03% and Google-parent Alphabet Inc. /zigman2/quotes/202490156/composite GOOGL -2.51% /zigman2/quotes/205453964/composite GOOG -2.56% are positioned well to withstand the current macroeconomic turbulence and “emerge stronger from it,” their results will still likely be pressured in the short term.
He trimmed Amazon’s stock price target to $170 from $180 and lowered his target on Alphabet’s stock to $136 from $145. Squali also lowered his third-quarter revenue estimates for Amazon to $125.0 billion from $126.7 billion and for Alphabet to $70.1 billion from $71.2 billion.
“We’ve updated our estimates to reflect growing headwinds from FX along with greater probability of a mild recession in 2023,” Squali wrote in a note to clients. FX refers to foreign exchange, or currency translation.
Meanwhile, he reiterated the buy ratings he’s had on Amazon and Alphabet for at least the past three years, saying that with valuations at 10-year lows, the market has already discounted much of the lowered outlooks.
Amazon’s stock has tumbled 29.9% year to date and Alphabet shares have shed 31.5%, while the S&P 500 index /zigman2/quotes/210599714/realtime SPX -1.44% has declined 22.4%.
A rising dollar can hurt results of multinational companies because it reduces the value of revenue and profit earned overseas. And the ICE U.S. Dollar Index /zigman2/quotes/210598269/delayed DXY +0.26% , which tracks the dollar against a basket of currencies of its largest trading partners, has run up 18.0% year to date, which already puts it on track for a record calendar-year gain. It closed at a 20-year high on Tuesday.
Amazon recorded $30.72 billion in international sales during the quarter ended June 30, or 27.2% of total revenue, while Alphabet recorded $33.68 billion, or 54.4% of its revenue outside of the U.S.
Squali also cut his stock-price targets for Meta Platforms Inc. /zigman2/quotes/205064656/composite META -6.79% to $240 from $260 and lowered his third-quarter revenue estimate to $26.8 billion from $27.6 billion, but kept the buy rating he’s had on the social-media giant for at least the past three years.
For Snap Inc. /zigman2/quotes/205087158/composite SNAP -6.73% , he kept his rating at hold and his price target at $12, but raised his third-quarter revenue estimate to $1.14 billion from $1.08 billion, to reflect “improving trends in digital ad demand” for the platform.
Meta derived 60.3% of its revenue for the quarter to June 30 from outside of the U.S., while Snap revenue from outside the U.S. was 32.4% of the total.
Meta’s stock has plunged 58.5% this year, while Snap shares have plummeted 77.4%.