As Facebook Inc (NASDAQ:FB) prepares to enter the ring of Internet players serving up earnings this evening, two bulls are casting confident predictions ahead of tonight’s fourth quarter exhibition.
GBH Insights analyst Daniel Ives is not afraid to admit that he believes Instagram’s massively skyrocketing monthly active users (MAUs) keep this platform a “golden jewel,” with solid monetization-meets-ad-growth “set to play out” in the new year.
In fact, by the middle of this year, Ives is betting on 1 million plus in MAUs in this platform alone, a clearly underrated asset by the Street.
In an upbeat preview of the social media titan’s fourth quarter print, the analyst reiterates a Highly Attractive rating on FB stock with a $225 price target, which implies a 17% upside from current levels. (To watch Ives’ track record, click here)
Ives explains, “While there continues to be evolution around Facebook’s ad growth model and monetization strategy, it appears the company is executing extremely well in the field (e.g. engagement, MAU growth, ad growth) and all key metrics look healthy for 4Q with modest upside expected and ‘good enough’ 2018 guidance based on our recent checks and GBH Tech Tracker survey work. We estimate Facebook is on a trajectory to have another solid quarter in 4Q on the MAU front and has strong momentum heading into 2018 on this all-important growth driver for the business, despite lingering clouds from the recent News Feed overhaul. To this point, we look forward to hearing more details about the News Feed strategic shift on the company’s conference call as this remains a major near-term Street worry around the name given ad growth and potential engagement headwinds, which we ultimately believe will be short lived with minimal financial impact.”
It is crucial from where the analyst is standing that this titan ante up investments in fresh growth initiatives to fire up expansion to drive ad growth rates, augmented reality (AR), the development of FB’s mobile platform, video, consumer engagement, as well as Instagram and Messenger monetization down the line. The company has a tall order ahead to expand its consumer reach through next-gen devices and wearables – all with the objective to build out its “advertising and consumer kingdom” against fierce rivalry from Amazon, Google, and more. “The jury is still out,” Ives concludes as far as the success of the company’s premium video chat portal strategy- but this titan is playing it “smart” in tackling a “fertile smart home market” next.
SunTrust analyst Youssef Squali, one of Wall Street’s best performing analysts weighs in even more bullish than Ives, angling for bigger return potential in the next 12 months for Facebook.
Ahead of tonight’s call, the analyst maintains a Buy rating on FB stock with a $240 price target, which implies a close to 28% upside from current levels.
“We expect Facebook to post strong 4Q results on 1/31, driven by continued improvement in monetization and user growth across both Facebook and Instagram. Increased engagement through the mix shift of ad units to video and carousel formats should help drive the results. However, aggressive hiring to address content and ad quality issues is likely to cause FY18 OpEx guidance to be reiterated rather than improved. We also anticipate more color on CEO’s comments earlier this month around potential structural changes to News Feed that could impact engagement and revenue trends,” asserts Squali.
For the fourth quarter, the analyst highlights “strong ad revenue growth” as a key driver for Facebook’s ability to hike ad revenue gains continuously and “robustly” above expectations. Squali projects Facebook can hit 45% year-over-year growth to $12.5 billion for the quarter, growth that will ride a wave of “improved monetization” as well as user growth. By Squali’s estimate, average revenue per user (ARPU) could rise 27% for the quarter to $5.92 and users could soar 16% year-over-year to 2.15 billion.
For overall fourth quarter expectations, the analyst estimates Facebook can realize $12.68 billion in revenues, compared to consensus of $12.54 billion, and EPS of $2.10, ahead of the Street’s $1.94. For 2018, the analyst expects Facebook to deliver $55.34 billion in revenue and $6.72 in EPS, more bullish than consensus of $54.0 billion in revenue, but aligning with the Street’s EPS expectations of $6.72.
“Our intra-quarter conversations with marketers have come back positive,” the analyst highlights, adding that Tel Aviv-based internet marketing service Kenshoo uncovered overall social spend to rise 39% year-over-year on back of 73% year-over-year growth in clicks and 85% growth in click through rate- a nice balance against a 19% dip in cost per click.
Though investors may take it “negatively” that CEO Mark Zuckerberg wants to revamp the News Feed algorithm, Squali is taking these changes in bullish stride, commending that they stem “from a position of strength.” Squali contends that the company is valuing long-term user experience coupled with satisfaction more than near-term monetization- and in “prioritizing content from friends over publishers, the company increases its relevancy and stickiness with users.” Should the company triumph in boosting ‘meaningful social interactions,’ Squali surmises: “users could end up engaging with the platform for the same amount of time but in a more active, rather than passive manner, a positive for advertisers over time.”
Youssef Squali has a very good TipRanks score with a 73% success rate and a high ranking of #49 out of 4,757 analysts. Squali yields 19.8% in his yearly returns. When recommending FB, Squali garners 27.6% in average profits on the stock.
TipRanks points to a strong bullish sentiment circulating through the Street on this social media titan. Out of 31 analysts polled in the last 3 months, 29 are bullish on Facebook stock, leaving just 1 on the sidelines and 1 bear sounding the alarm. With a return potential of nearly 17%, the stock’s consensus target price stands at $218.41.