All Eyes on Facebook (FB) Q1:18 Earnings Show Tonight

Wedbush's Michael Pachter believes the overall impact from Cambridge Analytica privacy-related scrutiny will be "minimal" in Q1 results.


Facebook, Inc. (NASDAQ:FB) is approaching tonight’s big earnings show with Street attention at a record level of high anticipation, with scrutiny and regulatory risk soaring on back of the Cambridge Analytica data fiasco.

Wedbush analyst Michael Pachter sets bullish expectations in his research note, calling for a beat once the bell tolls. This is a social media titan that can stand through the Cambridge Analytica fire, Pachter wagers, predicting: “Notwithstanding heightened scrutiny and elevated legislative and regulatory risk, we expect Facebook to weather the controversy surrounding its Cambridge Analytica data breach. We expect the company to continue to invest in various initiatives, with the majority, if not all, of those initiatives generating substantial EBITDA growth in years to come.”

Therefore, the analyst maintains an Outperform rating on FB stock with a $260 price target, which implies a 62% upside from current levels. (To watch Pachter’s track record, click here)

For the first quarter, Pachter anticipates Facebook will outclass the Street’s expectations, giving a largely limited impact from the privacy maelstrom kicked off by Cambridge Analytica. After all, any “heightened scrutiny” at play is no match for sustained audience and engagement growth- where Facebook reigns as king.

Pachter forecasts $11.56 billion in revenue from the titan and $1.41 in EPS, more bullish than consensus of $11.41 billion and $1.36. By Pachter’s estimation, global sequential monthly active users (MAU) growth hit roughly 59 million to 2.16 billion in the first quarter, with global sequential daily active user (DAU) growth potentially reaching 43 million to 1.44 billion. Sequentially, the analyst models MAU growth in the U.S. and Canada of merely 1 million, calling for global advertising average revenue per user (ARPU) to climb 27% year-over-year. Notably, this marks a slight winding down from the last two quarters, with the third quarter having reached 28% and the fourth quarter having increased to 29%.

In fact, the analyst believes the Street’s suggested expense growth for the year comes across as too conservative. For context, the FB management team calls for 45% to 60% expense growth against actual expense growth of 30% seen in 2016 and 34% seen last year, or what translates to $2.6 billion for 2016 and $3.6 billion by 2017. The analyst would not be surprised to see the bottom end of the guide boost, an encouraging sign that would indicate to the analyst the company takes its users’ privacy quite “seriously.”

Even amid negative publicity, scrutiny at a high, and “[…] with a slew of recent product changes and privacy updates designed to improve transparency and choice, it appears that global time spent per visitor actually increased over the trailing three months, referencing Alexa Top Sites’ global tracker,” notes the analyst.

Ultimately, the analyst believes the company’s revenue growth will continue to tower from “robust” heights. Pacther continues betting Facebook’s latest disclosure and transparency to legislators and users alike hopefully “serve to restore trust and improve the quality of time spent, while the company’s unmatched scale and ease of use when it comes to its advertising platform suggest that Facebook will continue to represent a core part of digital advertiser budgets.”

TipRanks indicates the social media titan has magnetized a strong bullish backing on the Street. Out of 34 analysts polled in the last 3 months, 31 rate a Buy on Facebook stock, 2 maintain a Hold, while 1 issues a Sell on the stock. The 12-month average price target stands at $219.33, marking 37% in return potential for the stock.