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Is Facebook Ready To Unleash A Multi-Billion-Dollar Opportunity?

Speculation is rising that Facebook ( FB ) will open its Messenger chat service to content publishers and advertising, creating a big multi-billion-dollar revenue opportunity and posing a growing threat to Alphabet ( GOOGL ). It’s a battle of stock market champions — both companies get a top IBD rank. Additions to the Messenger instant messaging platform are expected to be unveiled when Facebook holds its annual F8 developer’s conference April 12-14. Richard Windsor, an analyst at Edison Investment Research, said in emailed comments that Facebook’s top new announcement will be the opening of its messaging platform to allow publishers to distribute their content on Messenger. That could enable publishers to engage in direct conversation with users of Messenger and open the door for advertising sales pitches or product upgrades. “We suspect that Facebook will actually go much further and open up the platform entirely to developers to allow other functions within the messaging platform,” Windsor wrote. He expects Facebook will use its messaging platform to creating thriving multiplayer gaming environments, which would accelerate its move to add both media consumption and gaming to its digital content services. The goal would be to entice uses to do more with Facebook than just social networking and instant messaging. “This is the key to changing from being just an app into a fully-fledged ecosystem where users spend an increasing amount of their digital lives,” he wrote. The result is that Facebook would have a greater opportunity to monetize its 1.5 billion users and the 800 million users on Messenger. Facebook still has a very long way to go, but once this is complete, Windsor estimates Facebook will have the capacity to generate over $40 billion in revenue, compared to the $18 billion it generated in 2015. He also said Facebook’s apparent direction is why it’s emerging as Alphabet’s No.1 competitor, “as a large piece of this new opportunity that it hopes to generate is likely to come from Google.” Facebook has already expanded Messenger’s utility to include allowing users to send money to others, though Facebook currently does not charge a fee for the service. It’s also testing a feature that allows people to book an Uber ride through Messenger. More transportation services will be coming to the platform soon, including airlines, Facebook said. Nomura analyst Anthony DiClemente said in a research note Thursday that an advertising network which Facebook announced two years ago is gaining on a similar platform from Alphabet. The ad platform, called Facebook Audience Network (FAN), uses Facebook data to help advertisers place ads across multiple websites, beyond Facebook. FAN is in direct competition with AdSense and AdMob from Alphabet. DiClemente estimates FAN will add $2 billion to Facebook revenue in 2016, more than double that of 2015. The emerging growth drivers of FAN and Messenger will complement the strong revenue growth Facebook is getting from Instagram and video ads, he wrote. DiClemente raised his price target on Facebook to 135 from 125. Facebook stock fell 1.1% in the stock market today  to 108.39. It hit an all-time intraday high of 117.59 on Feb. 2. The company gets a best-possible Composite Rating of 99 from IBD. So does Alphabet, which slipped 0.2% Friday to 730.22. Alphabet hit an all-time high of 810.35, also on Feb. 2. Image provided by Shutterstock .

Ambarella Cuts GoPro Exposure On Sluggish Sales; Q1 Views ‘Messy’

Sluggish  GoPro ( GPRO ) sales will force Ambarella ( AMBA ) to cut its fiscal 2017 guidance from earlier views for 15%-20% growth, a Needham analyst predicted Friday after the chipmaker late Thursday posted mixed Q4 results and disappointing Q1 guidance. Ambarella stock was down 9.5% in afternoon trading  on the stock market today , below 42. GoPro stock was down more than 2%. Ambarella makes key chips used in GoPro’s Hero action cameras. Ambarella reported $67.97 million in sales and 64 cents earnings per share ex items, up 5% and down 6% year over year, respectively, for its fiscal Q4 ended Jan. 31. Sales topped the consensus model of 12 analysts polled by Thomson Reuters for $65.8 million and Ambarella’s own guidance for $65 million to $67.5 million, but EPS lagged expectations for 68 cents and declined for the first time in 18 quarters. Ambarella ended the year with $316.4 million in sales and $3.31 EPS ex items, up 45% and 66%, respectively. Both metrics beat the consensus for $313.6 million and $3.05. But Ambarella’s outlook is “messy” at best, Pacific Crest analyst Brad Erickson wrote in a research report. Erickson cut his price target on Ambarella stock to 62 from 72, but he kept his overweight rating. For Q1, Ambarella guided to $55 million to $57 million in sales, down 21% at the midpoint vs. the year-earlier quarter. It would be Ambarella’s first year-over-year decline in 18 quarters. Ambarella cut its GoPro exposure to low single digits until it refreshes its wearable sports camera line, likely in October, Erickson wrote. Overall, wearable cameras should account for a mid-teen-percentage of sales in Q1, Ambarella CFO George Laplante said Thursday on the company’s earnings conference call. The expected GoPro refresh, combined with strong seasonal IP security and drone sales, “should drive a return to year-over-year growth,” Erickson wrote. During Q4, China — which generally contributes heavily to IP security camera sales — was flat sequentially, Needham analyst N. Quinn Bolton wrote in a report. The IP security, drone and automotive segments all posted strong year-over-year growth, Bolton said. “But the consumer portions of these segments declined quarter over quarter,” he wrote. “As expected, wearable sports cameras declined substantially year over year and quarter over quarter.” Ambarella is shifting focus to the consumer and China professional IP security camera markets, where analysts say profit margins tend to be low. Quinn maintained his hold rating on Ambarella stock, noting cloudiness surrounding the China market.

How Much Will Apple Raise Its Quarterly Dividend?

During  Apple ‘s ( AAPL ) annual meeting last month, CEO Tim Cook said the company was committed to raising its dividend annually. The question of how much that raise will be won’t be answered until next month when Apple reports its March-quarter financial results. Piper Jaffray analyst Gene Munster on Thursday predicted that Apple will raise its dividend by 5% to 10%. “We believe that prior changes in capital return policy are good indicators for what to expect this April,” Munster said in a report. In April 2015, Apple raised its dividend by 11% to 52 cents a share. And in April 2014, Apple raised its dividend by 8%. Apple also is likely to hike its stock buyback plan significantly, he said. “We expect Apple to add $30 billion-$50 billion to its share repurchase program, based on the past two years of the share repurchase program,” Munster said. “This would generate an incremental 5% EPS growth, excluding revenue in each of the next two years.” Last April, Apple increased its buyback program by $50 billion to a $140 billion total. In January, Apple had $30 billion left on its current repurchase authorization, Munster said. “Our model reflects a share count reduction of 3% in calendar 2016, compared to an actual reduction of 5% in 2015,” he said. “We believe the updated buyback would suggest our share count reduction expectations are conservative.” It took Apple 3-1/2 years to repurchase $110 billion in stock of the authorized $140 billion program, he said. “Every 1% in share-count reduction adds about 9 cents to annual EPS, or about 1%,” Munster said. “Assuming a $110 average stock price, that 1% share count reduction would cost about $6.1 billion. In other words, if Apple increases the buyback by $40 billion, and has $20 billion-$25 billion left on the existing buyback, this would increase EPS by 10% if they completed the entire buyback in a year, excluding revenue growth. Most likely, the buyback will happen over a two-year period, generating about 5% EPS growth in each of the next two years.”