The third quarter earnings season is gathering momentum with results from 116 S&P 500 members or almost 30% of the index's total market capitalization already out (as of Oct 21).
As per the latest Earnings Preview report, total earnings of these 116 index members are up 3.3% year over year on the back of 1.8% higher revenues. Beat ratios are impressive with 80.2% beating earnings estimates and 62.9% coming ahead of revenue expectations.
More than 800 companies are set to report results this week, including 171 S&P 500 members. Notably, after consecutive five quarters of decline, earnings are now anticipated to record growth.
Overall third-quarter earnings for S&P 500 companies are now expected to inch up 0.1% (compared with the earlier estimate of down 1%) from the year-ago quarter on revenues that are estimated to increase 1.5%.
Growth is expected to be driven by impressive results from the Finance sector, which is anticipated to mitigate sluggish growth from the Energy, Autos and Transportation sectors.
Technology Sector in Focus
From the technology sector, we now have third-quarter results from 33.3% of the sector's total market capitalization in the S&P 500 index.
So far, total earnings are up 5% year over year on 0.2% lower revenues, with 88.2% beating earnings estimates and 70.6% beating revenue expectations. Earnings for the Technology sector are now anticipated to be up 1.1% based on 1% lower revenues.
This week's lineup includes leading Internet service companies - Alphabet Inc. GOOGL , LinkedIn Corp. LNKD , Twitter, Inc. TWTR and VeriSign, Inc. VRSN , all of which are scheduled to report earnings on Oct 27. Let's take a sneak peek into how these companies are poised ahead of their releases.
Search giant Alphabet is unlikely to beat third-quarter 2016 earnings estimates as it has a Zacks Rank #2 (Buy) and an Earnings ESP of 0.00%. Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.
This is because, as per our proven model, a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 or 3 (Hold) to beat earnings. Conversely, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
However, we note that Google has gained strength in the mobile platform. The company has greater control on the browser through Android as well as through distribution agreements with Apple AAPL . Google platforms like Android, Chrome and Daydream continue to help the company draw more users and sell more ads. But competitive threats from Microsoft Windows 10, Facebook Graph search and Amazon shouldn't be ignored either.
Google's troubles in the EU are mounting and despite its attempts to appease authorities by investing in the region, it may finally prove much more expensive for the company. Google is not providing for this outflow, which could mean that it still has a reasonable chance to come out victorious. (Read More: Alphabet Q3 Earnings: Is a Surprise in Store?)
In Alphabet's case, the surprise history hasn't been much impressive, since the company has missed estimates in two of the last four quarters, although by a small margin.
ALPHABET INC-A Price and EPS Surprise
Similarly, we don't expect professional networking behemoth LinkedIn to post an earnings beat in third-quarter 2016 as it has a Zacks Rank #3 and an Earnings ESP of 0.00%.
However, we note that LinkedIn's traction in the mobile segment is particularly impressive, primarily attributable to the launch of its applications for Apple's iPhones and Android-based smartphones. Synergies from its acquisitions - Lynda.com, Newsle and Bizo - are also expected to garner additional earnings through targeted marketing strategies in the near term, apart from enhancing user experience.
LinkedIn's initiatives to boost advertising revenues through product launches and partnership programs are noteworthy.
On the flip side, continued investments in new and improved products and services might dent LinkedIn's profits in the to-be reported quarter, even though over the long run, these investments will drive member growth and user engagement. (Read More: LinkedIn Q3 Earnings: Is a Surprise in the Cards?)
Notably, LinkedIn's results compared favorably with the Zacks Consensus Estimate in the last four quarters, with an impressive average beat of 115.18%.
LINKEDIN CORP-A Price and EPS Surprise
However, micro blogging site Twitter could come up with a positive surprise this quarter as it has a favorable combination of a Zacks Rank #3 and an Earnings ESP of +6.67%.
Twitter is making all efforts to monetize the opportunity presented by live video viewing to fight sluggish user and ad revenue growth. The company is now exploring beyond news and the series of live streaming deals are a step in that direction. Twitter's increasing relevance during major live events such as the upcoming U.S presidential elections, Olympics, Super Bowl, the Oscars, and the Grammys is a major growth catalyst.
Twitter is also trying to boost its user base and improve engagement levels by bringing more creators to churn out additional content for its platform. To make it more user friendly, Twitter has been making changes to its platform, which includes doing away with calculating media attachments and @names in the tweet count.
Twitter has also stepped up its AR/VR efforts with the purchase of a machine learning company, Magic Pony. It also brought on board, Alessandro Sabatelli to head the AR/VR division. (Read More: Will Twitter Top Estimates this Earnings Season?)
Twitter's results compared favorably with the Zacks Consensus Estimate in the last four quarters, with an impressive average beat of 39.74%.
TWITTER INC Price and EPS Surprise
Leading domain names and Internet security provider VeriSign is however not expected to beat earnings this quarter as it has a Zacks Rank #2 and an Earnings ESP of 0.00%. You can see the complete list of today's Zacks #1 Rank stocks here
However, we note that VeriSign holds a prime position in the highly regulated .com and .net domain industry.
The company has significant growth opportunities in the Distributed Denial of Service (DDoS) security and network security products space. In Aug 2016, VeriSign secured a bid for the .web top-level domain (TLD) from Nu Dot Co LLC, which bodes well for its growth.
On the flip side, the negative impact of search engine adjustments on domain monetization and increasing operating expenses related to marketing remain primary near-term headwinds. (Read More: What to Expect When VeriSign Reports Q3 Earnings?)
VERISIGN INC Price and EPS Surprise
Zacks' Best Investment Ideas for Long-Term Profit
Today you can gain access to long-term trades with double and triple-digit profit potential rarely available to the public. Starting now, you can look inside our stocks under $10, home run and value stock portfolios, plus more. Want a peek at this private information? Click here >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report