Breaking down this weeks big tech earnings – Yahoo Tech

Rohit Kulkarni, MKM Partners managing director, discusses some of this weeks biggest tech earnings, including Amazon, Facebook, Pinterest and Twitter.

JULIE HYMAN: Let's talk about some of the companies that are set to report after the close of trading. Facebook is top of mind. Rohit Kulkarni is joining us now, MKM Partners managing director. Rohit, good to see you. You know, do we get any pull through from the likes of Alphabet and some of the ad spending trends that we saw reflected in those numbers? Does that bode well for Facebook?

ROHIT KULKARNI: Yeah, absolutely. I think-- again, thanks for having me. I think what Google told us yesterday, both from a macro as well as a micro perspective, that online spending of consumers is elevated. It's coming back.

Second, from a macro standpoint, I think across all verticals, the level of beat that Google gave us yesterday was-- couldn't have been possible unless all the verticals except travel have been kicking into high gear for Google. So that's a very clear positive macro read for Facebook. Facebook has similar look and feel and composition of revenues. They do a little bit more digital native brands, which we think are also doing well.

And, of course, from travel, retail, tech, CPG, various different sectors that have different cohorts of reopening plays baked into the next six months, I think that bodes well for Facebook. So we feel positive beat and raise numbers coming in for Facebook as well.

- Rohit, on Pinterest, really a mixed quarter out of that company. The stock is under pressure as a result. How concerned are you about life after the pandemic for Pinterest? Which has benefited during the pandemic, because we have all been home on the platform. And then if you do have that concern, how important is it that Pinterest does, in fact, explore a sale, that this is a company that ultimately becomes a subsidiary of Microsoft?

ROHIT KULKARNI: Huh. What I would say is for Pinterest, we are buyers on the dip that we are seeing today. The reason why I say that is Pinterest, as a company, we have-- we think that they can navigate this user penalty box they have put themselves into. I think this company probably under invested in marketing and top of [INAUDIBLE] education of consumers as to how the platform has evolved over the last 18 months.

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They have added very many consumer-oriented features. I feel Pinterest is going to do just that. And users for all social media platforms, as you know, are the best leading indicator for what future performance would look like. Pinterest probably focused a lot more on advertisers over the last 12 months. They got that. Their revenues are accelerating. Their monetization is kicking into high gears.

Now they need to go back to the supply side, which is users and engagement, and which-- once they do that, I think Pinterest is going to be a more stable story. It is, again, a reasonably recent IPO, if you were to look at the history of Pinterest. And they are balancing supply and demand. Right now, demand is good. Supply they just need to work on.

So I feel-- I feel good about the longer-term prospects. This is a story that we-- we like heading into back half of '21 as well.

- You know, Rohit, another name that you cover that I kind of associate in this bucket of anything that isn't Google and Facebook. And that, of course, would be Twitter. Now, Twitter's story has changed a little bit. An activist in there. They're ramping up their product roadmap.

But when you think about, you know, a name like a Twitter, a name like a Pinterest, are they still kind of in this rising tides, lifting all the boats? I mean, you see the kind of quarter that you were just saying you're likely to see from Facebook tonight. Does that continue to augur well down, you know, the ad stack, if you will?

We saw from Snap last week indicates to some extent, yes. But how do you think about that from an ecosystem standpoint?

ROHIT KULKARNI: Yeah, you said it right-- right on, as in it's a rising tide that lifts all boats, as in-- if you remember what happened in March, April, May of last year, all these companies got a pullback from ad spend, and they are facing easier comps. Pinterest is going to grow more than 100% year-on-year on easier comps in Q2. That's the highest that-- growth rate that this company has ever had in the last five years.

Same with Google. Probably we will hear the same with Facebook. I think what would matter beyond Q1 earnings is whether-- how sticky this growth is going to look like in Q3 and Q4, once the comparables start getting tougher and tougher. I feel Twitter, the bar is high for them, given what has happened to the stock, given what they said in a post-Trump era about users, given what they're doing with direct response.

So the bar is high for Twitter. We like-- it is a good reopening play with Olympics, with events, with conferences, with live sports, as well as various different brand advertisers coming back to the platform. So Twitter should have a double tailwind, if you will. The platform is improving. The tailwind is getting stronger. And brand advertisers are coming back.

So there are more tailwinds in the favor-- in Twitter's favor. So if they execute, I think that's the biggest question mark, as an execution on the basis of technology is something that investors aren't fully convinced yet, like what Snap has been able to do or to some extent Pinterest has been able to do. Twitter is still their show-me story. I feel we'll know more about that tomorrow.

JULIE HYMAN: And finally, I want to end on another come to you cover that isn't really a show-me story. They've shown us quarter after quarter. I'm talking about Amazon, which at this point obviously is just a juggernaut on the e-commerce side and on the cloud side. Is there any suspense with Amazon? Like, what is your big outstanding question for this company?

ROHIT KULKARNI: I think the biggest outstanding question as in Amazon is a company from a stock's perspective. You buy on weakness. You buy on strength. It is a company that is, as you said, it's a juggernaut.

I think the suspense here is, what happens in 2Q? As in there are-- when we talk to investors, remember what Amazon did last year. They reported the highest growth rate for e-commerce and Amazon retail ever in 2Q. They had the best profitability in 2Q, despite spending $5 billion extra. So what happens in Q2 of 2020? We'll know more tomorrow. We have seen a wide dispersion in investor expectations, as in some people expect more than $110 billion in revenue. Some people are expecting $105 billion in revenue for Q2.

So we will see that. I think that will probably lead to some volatility in Amazon's shares. But regardless of what happens, I feel this is a company that's executing and has probably the best portfolio of products, be it cloud, advertising, and retail. And no matter which part of the reopening play you are in, either of all of them or at least two of them continue to succeed. So I think Amazon-- Amazon is a company that we are behind.

But I think the suspense is around 2Q outlook. And if I have to zoom into it a little bit more, what is the next big bucket of spend that Amazon will find? As in last year, they spent about $12 billion extra on COVID. Of course, Street is not modeling all of that comes back this-- this year, but some of it will come back. And Amazon always finds ways to spend money.

So what will that be, and how are they thinking about ROI of that spend? So those are the suspense items, if you will. But I think, as I said, all three segments benefit from reopening. And I think Amazon is something that has traded flat. We like it.

JULIE HYMAN: Amazon always finds ways to spend money, so true. Rohit Kulkarni, thank you so much, MKM Partners managing director. We look forward to those numbers and to your notes on them afterwards.

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Breaking down this weeks big tech earnings - Yahoo Tech