Facebook Inc (FB) Has Sustainable Strong Growth for the Next Two Years: Top Analyst

Cantor top analyst Youssef Squali is modeling for a robust quarter for Facebook Inc (NASDAQ:FB) as he looks ahead to widely anticipated fourth-quarter results due on February 1st after market close. As such, ahead of the print, the analyst reiterates an Overweight rating on FB with a price target of $170, which represents a just under 29% increase from where the shares last closed.

For the fourth quarter of 2016, the analyst looks for a 48.9% year-over-year rise in revenue to $8,695.8 million and a 63.2% margin yielding EBITDA of $5,495.2 million, more confident than FactSet consensus projections of $8,512.4 million in revenue and $5,580.0 million in EBITDA. Additionally, the analyst expects MAUs to rise 15.3% year-over-year to 1.835 billion and DAU/MAU (engagement) of 0.66, which he notes is “consistent with prior quarters.” Squali’s NEPS forecast is $1.13, just under consensus of $1.30, with a range of $1.08 to $1.40.

Moreover, the analyst remains encouraged based on channel checks that reveal “very strong ad demand for social inventory,” underscoring Kenshoo’s 64% increase in social ad spend growth thanks to a “near doubling” of quarter-over-quarter video revenue (marking a 263% surge year-over-year) as well as “impressive traction” with Dynamic Product Ads that experienced a 221% year-over-year upturn. For ad revenue growth, the analyst predicts a 50.8% year-over-year rise to $8,499.5 million.

“It’s all about advertising revenue; riding a secular wave,” says Squali, who sees an over 30% increase in growth “as sustainable for the next couple of years.”

Overall, “We expect the quarter to reflect healthy sustained demand for social ad spending amid secular growth in mobile, video, Instagram, and Audience Network. Channel checks and a positive read-through from Alphabet’s earnings last week (which showed accelerating revenue growth FXN) indicate the potential for upside to consensus estimates. FB remains a top pick for us, given its position as the largest/most engaging mass-reach Internet platform for advertisers, unmatched targeting potential, and very potent monetization formats against the secular tailwinds propelling digital advertising. The rise of other brands within the Facebook portfolio, namely Messenger, WhatsApp and Oculus provide upside optionality to the stock longer term,” Squali concludes, bullish on Facebook’s overall picture.

As usual, we like to include the analyst’s track record when reporting on new analyst notes to give a perspective on the effect it has on stock performance. According to TipRanks, top five-star analyst Youssef Squali has achieved a high ranking of #26 out of 4,378 analysts. Squali upholds a 73% success rate and garners 13.5% in his yearly returns. When recommending FB, Squali earns 33.7% in average profits on the stock.

TipRanks analytics indicate FB as a Strong Buy. Based on 39 analysts polled by TipRanks in the last 3 months, 36 rate a Buy on FB stock while 3 maintain a Hold. The 12-month average price target stands at $155.19, marking a 17% upside from where the stock is currently trading.

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