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Facebook (FB) Stock Remains a Good Bet Despite an Earnings Risk

Monness Crespi's Brian White still sees a "very attractive" stock in FB despite what initial drag comes from the Cambridge Analytica fiasco.


Is Facebook, Inc. (NASDAQ:FB) about to spill the damage that has ensued from the Cambridge Analytica mess? In a first quarter earnings preview, top analyst Brian White at Monness Crespi watches a social media giant directly “in the eye of the data privacy storm.” The print will reveal to a wide-eyed Wall Street a first glimpse into the prospective financial aftermath from the data leak as well as the FB management team’s “guideposts” for ways to perceive the giant’s model looking ahead.

On one hand, White warns of what appears as the steepest first quarter dip in sales in seven years, calling for a 13% downturn against the Street’s 12% forecast- the worst quarterly decline for any quarter. However, the hand that wins out is the bullish one, with White noting that should CEO Mark Zuckerberg and Co. handle this “well,” the catastrophe here currently haunting FB short-term could translate to an enticing long-term “opportunity.”

As such, the analyst maintains a Buy rating on FB stock with a $200 price target ahead of Wednesday’s quarterly financial show, which implies a 20% upside from current levels.

“Although we expect some impact on both DAU and advertising revenue, Facebook downplayed any material impact in the media. With the stock down 5% YTD and off 14% from its peak in early February, Facebook is trading at just under 18x (ex-cash) our 2019 EPS estimate, which we believe is very attractive,” highlights White.

For the first quarter, White bets FB can just surpass his revenue estimate angling for a 41% year-over-year rise to $11.34 billion as well as the Street’s $11.41 estimate. Additionally, the analyst sets EPS expectations of $1.35, a cent under the Street, noting conservatism following the data privacy scandal has been baked into his expectations.

Daily active user (DAU) growth should get hit with a “modest drag,” anticipates the analyst, especially considering the company went through its first sequential dip in U.S. and Canada DAUs, making investors get antsy.  On the heels of the Cambridge Analytica blunder, the analyst looks for impact on DAUs from the first quarter through the second quarter of the year. For the first quarter, White predicts a 4% quarter-over-quarter rise to a total DAU count of 1.459 billion, which would mark a 14% year-over- year rise.

Second quarter expectations still seem achievable from where White is standing, who calls for a 37% year-over-year rise to $12.73 billion in sales and EPS of $1.64. For context, consensus expects $12.91 billion in sales and $1.64 in EPS from the titan.

Overall, White surmises on a vote of confidence for the recently scandal-challenged titan: “Although we expect the Cambridge Analytica crisis to experience news flow aftershocks throughout 2018, we believe this crisis has provided Facebook with an opportunity to strengthen the integrity of its brand by very publicly putting in place strong privacy controls to protect its users. In our view, Mark Zuckerberg performed very well during his testimony last week, coming across as contrite, genuine and well composed. Although no CEO would likely want to trade places with him right now, we believe Facebook has an opportunity to set a standard for data privacy before potentially onerous U.S. regulation ensues, while being publicly seen as leading the charge.”

Brian White has a very good TipRanks score with a 68% success rate and a high ranking: #74 out of 4,738 analysts. White earns 15.9% in his yearly returns. When recommending FB, White realizes 0.0% in average profits on the stock.

TipRanks indicates the social media darling is a standout favorite for the bulls on Wall Street. Out of 34 analysts polled in the last 3 months, 31 are bullish on FB stock, 2 remain sidelined, while just 1 sole bear runs for the hills. With a positive return potential of nearly 32%, the stock’s consensus target price stands tall at $219.33.