Alphabet, Facebook: The Regulatory Overhang Looms Larger, Says Moffett Nathanson

Michael Nathanson, Internet analyst with boutique research house Moffett Nathanson, today offers up his preview of his main companies, including Alphabet (GOOGL), and Facebook (FB), starting with a warning: The regulatory climate is not getting friendlier.

In Q3, “the majority of news coverage was decidedly negative as their scale and influence on society has finally caught the eye of politicians and regulators.”

Not like regulation hasn’t been in the winds, but Nathanson notes that like cable operators in years past, the government is likely to figure out in the next ten years that Internet giants having “advantaged infrastructure,” catching up with the capital markets, which already reapplied that.

“As a result, we expect increased regulatory scrutiny in the U.S. and E.u., which should create an overhang which hinders prospects for further multiple expansion for these companies.”

None of that matters for Q3’s financials, though, and on that score, things are upbeat. The “name of the game was stability” in the quarter, he writes. There “were no game changing new products or developments” that he saw in his “checks” of the business.

Trends for search advertising and social advertising “remained solid,” he writes. His numbers are ahead of the Street for Facebook’s Ebitda and EPS, he writes, be cause “we continue to believe in eh strength of its underlying demand.”

Alphabet’s Ebitda should come in about as expected, with the Street “mis-modeling stock-based comp.”

Twitter’s (TWTR) results for Ebitda and earnings per share are probably going to be higher than consensus by $28 million and 5 cents per share, respectively, he writes, because he is “unwilling to play its game of setting ridiculously low profit expectations.” He still rates that stock a Sell because of its “unimpressive long-term growth prospects.”

And Snap (SNAP)? He’s lower than consensus by 11% for Ebitda, and 20% for EPS, given…

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