Facebook Inc Stock: Upside Lies Ahead

Wedbush's Michael Pachter says with Facebook's worldwide momentum, stellar targeting, and smart ad investments, the company's growth won't be curbed.


As Facebook Inc (NASDAQ:FB) prepares to showcase its fourth quarter earnings of 2017 come next Wednesday, one bull is calling for another beat from the social media titan- thanks to a strong audience base and sustained engagement gains.

Wedbush analyst Michael Pachter believes with momentum on the tech empire’s side, upside lies ahead, and not even a Newsfeed revamp should throw the company’s growth off track.

As such, in a bullish quarterly preview, the analyst reiterates an Outperform rating on FB stock with a $230 price target, which implies a 22% upside from current levels. (To watch Pacther’s track record, click here)

For the fourth quarter, Pachter looks for Facebook to yield $12.67 billion in revenue and $1.97 in EPS, compared to consensus of $12.51 billion in revenue and $1.95 in EPS. For worldwide sequential MAU growth, the analyst forecasts roughly 63 million to 2.13 billion along with worldwide sequential DAU growth circling 46 million to 1.41 billion.

Based on Alexa Top Sites research, it appears time spend on Facebook by users around the world seemed to see a boost throughout the fourth quarter. Accordingly, the analyst projects global ad impression and CPM growth to hit 44% in year-over-year revenue growth, more bullish than the 42% growth implied by the Street.

Notably, from the fourth quarter of 2016, Facebook’s revenue has surged ahead each of the consecutive four quarters to follow by 51% growth, 49%, 45%, and 47%, respectively. From Instagram Stories ads to value-based Lookalike Audiences coupled with Value Optimization, Pachter highlights a slew of new ad products and “enhancements” brought to the table last year. The fourth quarter comparison should benefit from this steamrolling momentum as well as ride a wave of digital ad market gains.

Overall, “We do not expect algorithm changes to hamper growth, as Facebook’s superior targeting, ongoing investments in ad products, and global expansion will position the company to deliver continued revenue and profit growth for years to come. Facebook has disclosed upcoming changes to its News Feed that are designed to prioritize content from friends, family, and trusted publishers, as opposed to unpaid content from businesses and publishers. While these changes may reduce ad inventory in the near term, we believe that ad pricing will ultimately adjust to offset any potential material decline in revenue growth. The engagement and retention improvements that these changes are intended to bring are likely to be net positive. In addition, rapid adoption rates for Instagram (with its 500 million DAUs as of September) and increasing advertising opportunities across Facebook Watch and the non-Facebook platforms (Instagram, Messenger, and WhatsApp) should allow for continued ARPU growth for several years,” Pacther surmises.

TipRanks suggests a bullish parade backing Facebook stock. Out of 31 analysts polled in the last 3 months, 29 are bullish on the social media titan, leaving one sidelined and one sole bear on the Street. With a return potential of 16%, the stock’s consensus target price stands at $217.67.  

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