Facebook Inc (FB) Keeps Taking A Big Slice of Advertising Market Share, Asserts Victor Anthony

The social giant impresses with another quarterly outclass between pricing, user gains, and Instagram power.

Facebook Inc (NASDAQ:FB) boomed once more, continuing its winning streak of earnings beats, flashing particular strength in pricing, user growth, and its valuable asset: acquisition Instagram.

Aegis analyst Victor Anthony is a happy bull on the Street today, joining many analysts who dismiss a slight 2% pullback today, calling this outperformance “impressive” as the social media titan “continues to take significant advertising market share.”

In reaction to a wow-worthy third quarter, the analyst reiterates a Buy rating on FB stock with a $215 price target, which represents a close to 21% increase from where the stock is currently trading. (To watch Anthony’s track record, click here)

For the third quarter, excluding foreign exchange volatility, the titan yielded 47% in advertising revenue gains, which yielded a beat even if a hair under the 49% experienced in the second quarter. Revenue of $10.328 billion outperformed the analyst’s expectations by 8% and the Street by 5%. Meanwhile, adjusted EBITDA of $6.90 billion, denoting a 66.9% margin, beating the analyst’s projection by 16% and the Street by 12%. Another strong beat for the company was thanks to GAAP EPS of $1.59, outclassing the analyst’s estimate of $1.16 and consensus of $1.24. GAAP operating margin of 49.6% stormed past the analyst’s 41% estimate, with momentum on Facebook’s side.

User gains treated Facebook well in its quarterly performance, with monthly active users of 2.072 billion surging 16% year-over-year, an addition of 66 million a bit under the 70 million adds seen in the second quarter. Daily active users likewise soared, experiencing 16% year-over-year growth, racking up an extra 43 million to 1.368 billion, above the 41 million adds seen in the second quarter. Engagement dipped to 66%, but it was less of a downturn than the second quarter, with free cash flow growing 76% year-over-year to $4.37 billion. By the end of the third quarter, Facebook boasted $38 billion in cash flow.

Anthony highlights, “Revenues, operating margins and EPS were well above our estimates and the consensus. […] core Facebook now has 6M advertisers while Instagram has 2M. Mark Zuckerberg stated that he is committed to making advertising more transparent and will invest significant capital in security with a focus on finding bad actors, removing false news, hate speech, and bullying. In addition to that investment, FB will also increase spend on digital video (short form and sports) for Watch, and on innovation. As a result, FB issued 2018 opex guidance growth of 45%-60% and a 100% increase in capital expenditures.”

For 2018, the analyst is boosting GAAP expenses anticipating 54% year-over-year growth to $11 billion and taking capex up by $7 billion, which brings Anthony’s total spending expectations up by $18 billion against the $8 billion total rise anticipated this year and the $5.5 billion total lift posted last year.

Though the analyst’s operating margin contract forecasts for 2018 have jumped up to 40%, he notes his revenue forecast for next year has been hiked by just $13 billion, which Anthony notes “is conservative and does not fully reflect Messenger monetization, which we expect to ramp in 2H18.” All the same, even with such tweaks, the analyst mostly maintains his adjusted EBITDA estimate for 2019.

On a closing note, the analyst predicts, “FB has always come in below the annual expense guidance over the past several years and we expect the same in 2018,” but with “solid user growth [and] FCF growth” under way, this titan is charging forward on strong legs.

Wall Street really “likes” this internet leader, especially when taking note that TipRanks analytics showcase FB as a Strong Buy. Out of 33 analysts polled by TipRanks in the last 3 months, 31 are bullish on Facebook stock, 1 remains sidelined, and 1 is bearish on the stock. With a return potential of nearly 16%, the stock’s consensus target price stands at $207.13.

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