GBH Insights analyst Daniel Ives sees next Wednesday’s first quarter print from Facebook, Inc. (NASDAQ:FB) for 2018 – especially following the pandemonium that has ensued after since the Cambridge Analytica mess – as a “pivotal barometer.” With prospectively 87 million FB users in anger over having had their data leaked, in Facebook’s 14 years, Ives views this as the social media titan’s worst bind yet. The Street will be looking to determine how bad the “fundamental damage” is here in terms of advertising and monthly active user (MAU) growth.
That said, the analyst does wager this negative buzz is “baked into” FB’s valuation. Even as Ives spotlights standout risks and question marks circling regulatory challenges along with prospective damage to a yearly advertising empire that reaps roughly $50 billion, he remains in the bullish camp.
Ahead of the quarterly financial results, the analyst reiterates a Highly Attractive rating on FB stock with a $225 price target, which implies a close to 35% upside from current levels. (To watch Ives’ track record, click here)
“While Zuckerberg sitting in 2 days of intense Congressional hearings last week and passing this first test ‘with flying colors’, 1Q earnings will be the next key step for investors to either boost their confidence in the Facebook story going forward or raise further red flags around the risk profile going forward. To this point, we believe 1Q should be a relatively strong quarter with modest upside to the Street’s total revenue and EPS estimates of $11.41 billion and $1.35, while the investment profile for 2018 might need to be ramped up further in light of increased security expenses. In a nutshell, overall this should be another step in the right direction for Facebook after a month of navigating these unprecedented data concerns post the Cambridge debacle with the worries around regulatory headwinds and damage to the company’s advertising fortress a lingering black cloud over the stock,” writes Ives.
In his Tech Tracker user survey work following the Cambridge Analytica fiasco, the analyst has uncovered around 15% of FB users intend to scale back in some form how much they use the platform, and a “negligible” amount have run for the hills. A worst case picture from Ives’ calculation reveals roughly 3% of revenues stand “at risk” this year, or $1 to $2 billion in yearly advertising on back of waning user growth, sluggish engagement, and weaker advertising revenues. The biggest question remains or regulation, as far as the Street is concerned.
Overall, Ives wagers all damage here is under “contained” control and will prove not to be as bad as Wall Street has feared, a sigh of “relief” for the first quarter of this year. Keeping an eye on regulation as the “X” factor, the analyst continues to view Instagram as “key” and the company’s growth narrative as the “fuel in FB’s tank.”
TipRanks showcases this social media darling as a popular stock among sell-side analysts. Out of 34 analysts polled in the last 3 months, 31 are bullish on FB stock, 2 remain sidelined, while 1 is bearish on the stock. With a return potential of 31%, the stock’s consensus target price stands at $219.31.