Wedbush analyst Michael Pachter weighed in today with research reports on the social media giant Facebook Inc (NASDAQ:FB) and mobile game giant King Digital Entertainment PLC (NYSE:KING), following yesterday’s earnings announcements.
Facebook share are up more than 5% after the company reported an extremely robust quarter driven by mobile ad growth, despite a difficult FX environment. Third-quarter revenues and EPS of $4.5 billion and $0.57 were above consensus of $4.37 billion and $0.52, respectively.
In reaction, Wedbush’s Michael Pachter reiterated an Outperform rating on Facebook, with a price target of $115, which represents a potential upside of 5% from where the stock is currently trading.
Pachter noted, “Despite its phenomenal growth over the past 10 years, we expect Facebook to continue to grow its active user base over the next 10 years. The company has taken its Instagram user base from an estimated 30 million MAU in mid-2012 to over 400 million MAU today. Similarly, its WhatsApp user base has grown from 500 million MAU in early 2014 to over 900 million today. Facebook’s Messenger service has grown to over 700 million MAU from 200 million in early 2014. We expect the company to grow the engagement and monetization of users on these three platforms rapidly over the next several years, while continuing to grow its ARPU globally as it delivers an increasingly media-rich suite of advertisements.”
Furthermore, “As Facebook modifies and improves these more youth-oriented products, it is likely that it can make the transition to Facebook seamless as Instagram and WhatsApp users age. Facebook is rapidly reaching market saturation, with an estimated 60% of total global Internet users visiting its site monthly, and an estimated 70% of all mobile users visiting monthly. Any decline in the number of users for any one of its products may spook investors.”
According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Michael Pachter has a total average return of -2.2% and a 46.9% success rate. Pachter has a 49.1% average return when recommending FB, and is ranked #3412 out of 3824 analysts.
Out of the 47 analysts polled by TipRanks, 42 rate Facebook stock a Buy, 4 rate the stock a Hold and 1 recommends a Sell. With a return potential of 8%, the stock’s consensus target price stands at $117.73.
King Digital Entertainment PLC
Pachter downgraded shares of King Digital from an Outperform to a Neutral rating, while keeping his price target at $18, which represents a slight upside potential from current levels.
Pachter explained, “King delivered results above expectations, and provided guidance that reflects a stabilizing core business. Bookings of $502 million were above our $490 million estimate and guidance of $460 – 485 million, and guidance for Q4 bookings calls for a range of $475 – 500 million. Based on King’s brief history, it appears to us that the company is intent upon exceeding the high end of guidance, suggesting that Q4 bookings will be sequentially flat.”
“As King is trading close to our 12-month price target of $18, we are downgrading shares. Our price target is based upon a 10x multiple for our $1.80 EPS estimate in 2016, reflecting a discount to the market multiple to account for uneven bookings and the risks associated with a hit-driven business. Given the company’s pending acquisition by Activision Blizzard at our target price, shares are unlikely to appreciate significantly,” the analyst continued.
According to TipRanks.com, Pachter has a 9.9% average return when recommending KING.
Out of the 12 analysts polled by TipRanks, 10 rate King Digital Entertainment stock a Hold, while 2 rate the stock a Buy. With a downside potential of 1.5%, the stock’s consensus target price stands at $17.57.