Technology earnings season rolls on, leaving analysts busy assessing various companies before and after earnings. This week, one analyst voices his bullishness on Facebook, Inc. (NASDAQ:FB) after the social media giant posted earnings while another analyst explains why she remains on the sidelines after LinkedIn Corp (NYSE:LNKD) posted earnings.
Facebook will report its third quarter results after the closing bell on Wednesday, November 4. In the meantime, Michael Pachter from Wedbush has a bullish stance on the stock in anticipation that the company will again exceed consensus EPS expectations. Pachter has reiterated an Outperform rating on Facebook with a 12-month price target of $115.
For Q3, Pachter expects revenues of $4.395 billion and EPS of $0.55 against consensus estimates of $4.367 billion and $0.52, respectively. According to Pachter, Facebook’s topline growth trajectory will be defined by revenue from its mobile news feed ads, up a healthy 74% y-o-y in Q2. Additionally, Facebook’s increasing popularity of video among advertisers and users, bolstered by recent product roll-outs such as auto-play video ads and carousel ads for Audience Network, should continue to provide positive momentum for the company in the foreseeable future.
Pachter believes that concerns around slowing user growth in the U.S. will be offset by improving ad ARPU (average revenue per use) worldwide for its core platform and the rapid user growth of its next generation of services. Plus, any increase in monetization on Instagram in 2016 and over the longer term on Messenger and WhatsApp should significantly add to the company’s revenues.
The analyst also points to the EBITDA contribution margin on Facebook’s revenue growth, remarking that is an impressive 80%. He expects the company to invest a considerable portion of its EBITDA growth into new initiatives, including building out advertising platforms for Instagram, Messenger, and WhatsApp, while at the same time investing in growing its Oculus VR offering. But even with the reinvestment expenses, Pachter affirms that Facebook is poised to continue increasing revenues and contribution profit at a very high rate in the coming years.
According to Pachter, with no fierce competition in view and propelled by a large user base, Facebook is likely to remain the dominant social media platform for the coming decade and more. He concludes, “We think that the stock has the potential to appreciate for several more years.”
Pachter has rated Facebook’s stock 15 times since 2012. Based on these ratings, his success rate for the stock is 73% and his average return on stock is 52.1%. Based on the 20 analysts polled by TipRanks in the last 3 months, all 20 analysts are bullish on Facebook. The average 12-month price target is $117.68, marking a 15% average return per rating.
LinkedIn reported its Q3 results last week on October 29. Following the results, Sarah Hindlian from Brean Capital, LLC weighed in on the stock, reiterating a Hold rating on the stock without assigning a specific price target.
Hindlian says that while the company’s results were better than the previous two quarters, she’s concerned about the lack of stabilization in the company’s core business. Lynda, the company recently acquired by LinkedIn, was the key driver behind the growth and the outlook for the future.
According to Hindlian, LinkedIn’s Q3 organic revenue grew around 30% year-over-year. In terms of specific segments, talent solutions saw revenues of $502.1 million against consensus estimates of $476.7 million. Hindlian points out these revenues got a boost from Lynda.com. Excluding the $41 million in revenues from Lynda, Linkedin’s revenues for its core segment would have been $460.8 million; a year-over-year growth of 33.7% as opposed to 32.1% in Q2. While the free-falling of growth has stopped, Hindlian continues to believe there could be risks to talent solutions “from a mix shift to the price sensitive mid-market.”
Hindlian is happy with LinkedIn’s adjusted EBITDA performance ($208.1 million against consensus of $151.3 million.) She attributes this performance to lower expenses related to Lynda.com, self-serve onboarding and upside in terms of revenues. The analyst believes the company is cautiously guiding for integration costs related to Lynda.com. She says, “We estimate that it will take another ~5 quarters for LinkedIn to return to pre-Lynda margins.”
Hindlian has rated LinkedIn’s stock 7 times this year. Based on these ratings, her success rate for the stock is 100% and her average return on stock is 12.7%. According to TipRanks, 18 of the 23 analysts polled in the last 3 months are bullish on LinkedIn while 5 remain neutral. The average 12-month price target is $271.33, marking a 12% potential upside from where shares last closed.