Money-printing machine Facebook (FB) is set to release fourth-quarter earnings this Wednesday. Investors aren’t necessarily concerned with whether or not the social networking giant made a ton of money — that’s a given. The question is about growth: Is Facebook maintaining its torrid growth, or will it show deceleration as its third-quarter results did?
The company had a rough 2018, as privacy scandals and Congressional hearings painted Facebook (a normally-beloved company) in an extremely negative light. But while this sentiment was reflected in its stock price — which had dropped 40% in the second half of the year — its financials has still been extremely strong. For example, the company’s revenue grew 42% and 50% year-over-year in its 2018 Q1 and Q2, respectively, before dropping to 33% growth in Q3. While 33% growth is still phenomenal (especially for a decade-old company), some analysts and investors are worried that this declaration will continue and may point to larger issues for the company.
Wedbush analyst Michael Pachter is not one the these analysts — he has reiterated his Outperform rating and $220 price target. (To watch Pachter’s track record, click here)
Pachter cites Facebook’s “unmatched scale, ease of use, and breadth of ad inventory,” which he says suggests will help the company “continue to represent a core part of digital advertiser budgets in the U.S. and around the world.” The social network has over two billion users on its namesake platform, as well as more than 1.5 billion on WhatsApp and one billion on Instagram. While Facebook itself is the key revenue-generating product in its portfolio, WhatsApp and Instagram and showing signs of life and revenue-contribution.
One new feature that Pachter highlights is the company’s “Stories” medium on Facebook, WhatsApp, and Instagram. This is a direct result of Snapchat’s My Story feature, and a way to compete with the once-burgeoning social network app. The analyst says this feature serves as an “additive to overall user engagement” and sees “significant opportunity for long term monetization as advertiser tools and demand for the format achieve scale.”
On the stock, Pachter says “shares of Facebook remain significantly discounted.” The analyst believes the stock has room to grow from the current 11z consensus FY19 EBITDA estimate to an 18x EBITDA multiple. While the analyst is extremely bullish on Facebook’s financial performance, he does not go into much detail regarding Facebook’s now-tarnished image and privacy concerns in the US federal government, state governments and overseas.
Pachter isn’t alone in only looking at the numbers. Even amid the crosswinds, Wall Street analysts are still confident in the company moving forward. TipRanks analysis of 42 analysts, shows a consensus Moderate Buy; of the 42 analysts, 34 recommend Buy, while 5 say Hold and 3 are selling. There is an average price target of $181.90, which represents a 24% upside. (See FB’s price targets and analyst ratings on TipRanks)