What to Expect Ahead of Facebook Inc (FB) and Twitter Inc (TWTR) Earnings: Wedbush

Both Facebook Inc (NASDAQ:FB) and Twitter Inc (NYSE:TWTR) will be reporting earnings next week. Wedbush analyst Michael Pachter weighed in on the two stocks ahead of the tape, highlighting his estimates, potential catalysts, and concerns.

Facebook Inc

With Facebook preparing to release first-quarter earnings results after the market close on Wednesday, April 27, Pachter reiterated an Outperform rating on the stock, with price target of $128, which implies an upside of 13% from current levels. The analyst expects a Q1 beat driven by mobile ad momentum. Furthermore, a slew of recent ad initiatives should drive consistent top-line growth.

Pachter wrote, “We expect revenue of $5,337 million and EPS of $0.65, vs. consensus of $5,254 million and $0.62. We modeled a $374 million q-o-q drop in mobile ad revenue, greater than the $59 million drop in Q1:15; assuming modest $100 million and $25 million q-o-q declines for desktop ad and payments revenue, respectively, mobile ad revenue would have to decline by $462 million q-o-q to approach consensus.”

“Instagram has switched its feed from reverse chronological to algorithmic, which should benefit the visibility of advertisers. In Messenger, users could begin to see ads from companies that they have interacted with previously, with bots expected to drive engagement with companies. The continued emphasis on video should benefit long-term ad pricing. The launch of the Oculus Rift VR headset marks a major milestone for the company, but its financial contribution is likely to be much smaller in 2016 than in subsequent years,” the analyst continued.

According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, 43 analysts rate Facebook stock a Buy, 4 rate the stock a Hold and 1 recommends a Sell. With a return potential of 18%, the stock’s consensus target price stands at $133.88.

Twitter Inc

In addition, Pachter reiterated a Neutral rating on shares of Twitter, with a price target of $20, as the company will report its first-quarter results after the market close on Tuesday, April 26. The analyst expects Q1 results above consensus from positive ad momentum. However, he believes the company’s articulated strategy is lacking at present.

Pachter opined, “We expect ad engagements to again be up significantly in Q1:16, following y-o-y increases of over 150% in each of the last two quarters of 2015. Twitter has a history of delivering results above the Street’s expectations. We expect revenue of $610 million, adjusted EBITDA of $160 million, and non-GAAP EPS of $0.09, vs. consensus of $608 million, $157 million, and $0.10, and guidance for revenue of $595 – 610 million and adjusted EBITDA of $150 – 160 million.”

“Although Twitter should once again beat the Street’s financial expectations, we do not believe MAUs grew more than 1% in Q1, to 308 million. Moments has been underwhelming and Periscope is unlikely to be as popular as Facebook Live longterm given that Twitter is a destination for news, not necessarily family or friends,” the analyst added.

Out of the 43 analysts polled by TipRanks, 16 are bullish on Twitter stock, 23 are neutral, and 4 recommend a Sell. With a return potential of 46%, the stock’s consensus target price stands at $25.56.


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