The stock market was a mess in October — affecting Facebook (FB) as well as other tech giants. That coupled with a data leak in March and a security breach in September have made it difficult for Facebook stock to recover. However, the social media titan will get a chance to shore up its bull case when it reports third-quarter earnings this afternoon.
Ahead of the print, Wedbush analyst Michael Pachter expects that the monthly average user will grow overseas and asserts that Facebook is still king when it comes to raking in digital ad revenue. Pachter reiterates an Outperform rating for the stock with a price target of $250, showing an upside of 66%. (To watch Pachter’s track record, click here)
“Our estimates are for revenue of $13.93 billion and EPS of $1.50 vs. consensus of $13.78 billion and $1.47. We anticipate global sequential MAU growth in Q3 of approximately 41 million, up from growth in Q1 of 38 million, and growth in Q3:17 of 66 million. We have modeled global sequential DAU growth of 32 million,” Pachter said.
The analyst estimates U.S. and Canadian monthly usage of Facebook will not change much, but that daily usage could rise by about one million. Double-digit year-over-year percent increases in digital ad pricing seen in all six past quarters is what leads the analyst to say he’s sure ad revenue is reason enough to be bullish over FB stock.
“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. User growth and engagement on Instagram meanwhile continue to impress (counting 1 billion global MAUs as of June), while Messenger and WhatsApp, with global MAU bases of approximately 1.3 billion and 1.5 billion, respectively, represent long term ad revenue opportunities off of minimal CPM expansion. Finally, advertising ARPU in the U.S. and Canada remains over 4x higher than worldwide advertising ARPU, suggesting significant room for monetization growth internationally,” Pachter said.
Facebook has cautioned investors to expect margins to tighten from current mid-40 levels to the mid to high 30s over time. This news plus scandals over cybersecurity mixed with a number of executives leaving the company all contributed to the share price dropping. Nevertheless, Pachter has reason to be optimistic: “Shares of Facebook are currently trading at approximately 10x the consensus FY:19 EBITDA estimate, and we believe that a 20x EBITDA multiple remains reasonable.”
Pachter is not alone. Most analysts on Wall Street are out rooting for this tech titan even after the storm. Based on 30 analysts polled by TipRanks in the last 3 months, 26 rate a Buy on FB stock while 3 maintain a Hold and one a Sell. The 12-month average price target stands at $200.33, marking a nearly 41% upside from where the stock is currently trading. (See FB’s price targets and analyst ratings on TipRanks)