As the earnings season continues to rumble with new releases yesterday from Facebook Inc (NASDAQ:FB) and Zynga Inc (NASDAQ:ZNGA), Wedbush analyst Michael Pachter maintains his confidence in his forecasts for these players in the tech world.
Despite posting a great third-quarter print, Facebook stock initially fell on the heels of its CFO warning advertising revenue is about to “meaningfully” dip causing the team to respond with “aggressive” investments. However, to Pachter, the company continues to emerge victorious with stellar long-term prospects for the next 10 years to come. In turn, the analyst has picked Zynga shares for his Wedbush Securities Investment Committee’s Best Ideas List and thinks if investors can be patient until 2017, they will find the reward well worth the wait.
According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Michael Pachter is ranked #3,817 out of 4,165 analysts. Pachter has a 46% success rate and faces a loss of 4.3% in his annual returns. When recommending FB, Pachter loses 38.3% in average profits on the stock. When suggesting ZNGA, Pachter forfeits 7.0%.
Let’s take a closer look:
Facebook shares are falling 5% after the social media giant released third-quarter earnings yesterday. Yet, to Pachter, these “near-perfect” results were “priced for perfection” even amid near-term concerns arising from a decline in ad load coupled with a rise in hiring.
Praising the revenue and earnings beat and not fazed by short-term pressures to the shares, the analyst reiterates an Outperform rating on shares of FB with a $162 price target, which represents a 33% increase from where the shares last closed.
After the print, the analyst is tweaking his model, cutting back on his revenue projection for the financial year of 2016 from $27,574 million to $27,316 million, while lifting EPS from $4.03 to $4.18, a reflection of the results and new expense guidance. Moreover, Pachter is taking revenue estimates for 2017 a notch down from $38,144 to $37,694 million, while also raising EPS from $5.41 to $5.70, taking into account the lesser effective tax rate.
“Facebook has a virtually insurmountable competitive advantage with over 1.8 billion monthly active users and over 1.2 billion daily active users, and has convinced 4 million advertisers that it offers a captive and desirable audience. Facebook should continue its rapid growth overseas, and should expand monetization of under-penetrated Instagram, WhatsApp and Messenger over the coming years. Facebook’ initiatives position the company for long term growth, which we anticipate to continue for the next decade. In summary, we believe Facebook is a great company, period,” Pachter concludes.
TipRanks analytics indicate FB as a Strong Buy. Out of the 33 analysts polled by TipRanks, 31 are bullish on Facebook stock, while 2 remain sidelined. With a return potential of nearly 32%, the stock’s consensus target price stands at $159.71.
After Zynga delivered a “solid” third-quarter yesterday, Pachter remains convinced that the mobile games maker is a “compelling investment.” However, when assessing fourth-quarter bookings guidance, the analyst believes betting on Zynga is a patience game as the results suggest “that investors will have to wait for growth until 2017.”
On back of a steady quarter and ahead of the first quarter of 2017, which the analyst anticipates could be the company’s “breakout quarter,” Pachter reiterates an Outperform rating on ZNGA with a price target of $4.25, which represents just under a 51% increase from where the shares last closed.
Zynga posted bookings that reached $196.7 million, outclassing the high-end of its guidance range of $180 to $190 million, “slightly beating” the analyst’s estimate of $195 million and “comfortably exceeding” the Street’s $187 million. The company also “once again” reported upside to its EBITDA guidance and simultaneously “demonstrated its commitment to expanding operating margin.”
Moving forward, though Zynga models bookings of $185 to $195 million for next quarter, the analyst is looking for $24 million in quarter-over quarter growth, which tops the Street’s expectations by $15 million.
The analyst opines, “We think that Dawn of Titans may add $25 million or more of bookings, CSR2 could deliver flat bookings, and we expect the drag from shutting down underperformers to subside, positioning Zynga to grow its top-line at a faster rate than the Street has modeled. Should either of the two newest games exceed expectations, or should it launch an unannounced title before the end of Q1, bookings growth may accelerate further.”
“The games pipeline is likely well stocked. CEO Frank Gibeau […] has re-focused Zynga’s studios on the highest potential games, and has refined the greenlight process to ensure that games launched have significant revenue potential. We are confident that Zynga will launch at least two games each year with the potential to generate $50 million per year,” Pachter surmises.
TipRanks analytics demonstrate ZNGA as a Buy. Based on 10 analysts polled in the last 3 months, 5 rate a Buy on ZNGA, 5 maintain a Hold, while 1 issues a Sell. The 12-month price target stands at $3.65, marking a nearly 29% upside from where the stock is currently trading.