Top Analyst Says Look for Strong Revenue Growth from Facebook Inc (FB) Come 3Q Earnings Time

Youssef Squali believes strong monetization and user growth have treated FB well during the quarter.


Top analyst Youssef Squali at SunTrust is setting a high bar for Facebook Inc (NASDAQ:FB) to put ace third quarter earnings on the table come November 1st, with a stellar one-two punch from better monetization as well as rises in users across the board between core Facebook as well as its winning acquisition: Instagram.

The analyst reiterates a Buy rating on FB stock with a price target of $210, which represents a just under 21% increase from where the stock is currently trading.

For the third quarter, Squali looks for ad revenues to “grow robustly,” calling for 42% year-over-year gains to $9.68 billion. Once again cheering monetization and user growth as two key drivers for Mark Zuckerberg’s social media king, the analyst expects monetization to score a 24% surge in average revenue per user (ARPU) to $4.725 for the third quarter) and for monthly active users (MAUs) to race up 17% to 2.09 billion. Additionally, the analyst is confident after encouraging intra-quarter discussions with marketers.

This was a quarter that saw a domestic “long-awaited roll out” for Facebook’s Watch tab that showcases premium original content including: Major League Baseball games, NFL highlights, shows from the likes of Buzzfeed and A&E with a dating show, and even a fresh new series starring Mike Rowe of the popular ‘Dirty Jobs’ from the Discoery Channel. Squali writes, “We do not believe Watch will affect 3Q earnings, however we think it should play an important role in future revenue growth and margins, as Facebook reportedly looks to spend $1B on content in FY18.”

Meanwhile, Instagram continues to be on a user-ramping roll, having amassed 100 MAUS from April, marking a climb to 800 million MAUs and 500M DAUs. “We believe user growth, coupled with strong monetization efforts, should yield strong revenue growth,” the analyst muses, singing the praises of Facebook’s strategic acquisition.

The broad scope for Facebook is an overwhelmingly fortunate one, as Squali surmises: “Engagement, mix shift to video and ad load should drive the results. Aggressive hiring to review content and ad quality, and investment in video are likely to cause Opex guidance for FY18 to be reiterated. We remain constructive on FB as we believe 1) ad demand across FB and Instagram has material headroom, as video-viewing shifts online from TV, 2) user growth/engagement remain robust, and 3) Messenger should start showing monetization potential in 2018.”

Youssef Squali has a very good TipRanks score with a 73% success rate and a high ranking of #55 out of 4,695 analysts. Squali garners 18.9% in his yearly returns. When recommending FB, Squali gains 29.9% in average profits on the stock.

This top analyst echoes the predominant bullish vote from the Street on the social media king, considering TipRanks analytics reveal FB as a Strong Buy. Out of 34 analysts polled by TipRanks in the last 3 months, 31 are bullish on Facebook stock, 2 remain sidelined, while 1 is bearish on the stock. With a return potential of 14%, the stock’s consensus target price stands at $199.00.