Facebook Inc Gets a Confident Call from Top Analyst Ahead of Q4 Print

RBC Capital's Mark Mahaney sets his expectations for FB's 4Q above consensus, finding good odds for upside.

Top analyst Mark Mahaney at RBC Capital is out with a bullish forecast on Facebook Inc (NASDAQ:FB) ahead of the social media titan’s fourth quarter earnings due Wednesday- even more upbeat than the Street.

Betting on higher chance for upside than downside, one of Wall Street’s best performing analysts maintains an Outperform rating on FB stock with a $230 price target, which implies a 22% upside from current levels.

Ahead of the print, Mahaney sets high expectations, angling for $12.65 billion in revenue (which would suggest 42% year-over-year growth without foreign exchange impact), ahead of consensus of $12.54 billion; $8.73 billion in adjusted EBITDA, above consensus of $8.51 billion; and $2.02 in GAAP EPS (implying 66% year-over-year growth), which would top consensus of $1.94. Additionally, the analyst calls for the FB team to reiterates its opex growth guide between 45% and 60%.

Back in December, Mahaney recalls takeaways from his consumer survey, where he polled around 5,000 domestic Internet users 13 years old and up to determine the “pulse” of Social Media (“SM”) usage, paying attention to the following social media darlings: Facebook, Twitter, Instagram, and Snapchat. “Not surprisingly, core Facebook had the best overall penetration rate and current usage among the Social Media networks surveyed. However, we find the slightly (more) negative bias towards expected time spent on the platform a small concern, and will continue to monitor this going forward,” the analyst comments.

Mahaney likewise shines light on the Instagram factor, which just as it exhibited in his last two surveys, continues to reign as second most popular Social Media platform, with user penetration beating out the likes of Snapchat and Twitter, and falling behind only Facebook, a.k.a. “the mothership.” Moreover, “Its engagement remained the third best with a 57% DAU/MAU ratio (vs. 53% in June 2016 and 61% in December 2016), but intentions to spend more time vs. less on the platform on the future were quite positively skewed 22% / 11%,” adds Mahaney.

As far as traffic data, it seems “neutral” to the analyst, who underscores that total minutes per unique visitor trends have “worsened” on a “tougher comp.”

Bottom line, the analysts concludes with three focal points for the titan. First, Mahaney anticipates further user growth and engagement, noting: “Facebook has continued to grow users at an impressively robust pace off a very large base.” For the fourth quarter, Mahaney looks for a 66.1% quarter-over-quarter rise in the daily active user (DAU)/monthly active user (MAU) ratio to 66.1%. On the advertising revenue growth front, the analyst anticipates without the impact of foreign exchange, the rate will slip from 49% last quarter to 45% on an “easier comp.”  Mahaney expects the GAAP operating margin will rise to 53% and the adjusted EBITDA margin will surge 69% year-over-year.

Mark Mahaney has a very good TipRanks score with a 70% success rate and a high ranking of #30 out of 4,761 analysts. Mahaney yields 23.5% in his yearly returns. When recommending FB, Mahaney gains 30.4% in average profits on the stock.

TipRanks highlights a strong confidence from analysts on the Street betting on this social media titan’s market opportunity. Based on 31 analysts polled in the last 3 months, 29 rate a Buy on Facebook stock, 1 maintains a Hold, while 1 is bearish on the stock. With a return potential of 16%, the stock’s consensus target price stands at $218.22.

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