Investors Should Look for Facebook Inc (FB) to Outperform the Street’s Q3 Expectations, Says Michael Pachter

Wedbush's Michael Pachter believes FB rules the tech-verse leaderboard.


Wedbush analyst Michael Pachter is out setting bullish expectations on Facebook Inc (NASDAQ:FB) ahead of the social media titan’s third quarter print due tomorrow evening, angling for another outclass. Between fired up momentum from new ad products as well as robust user gains, the analyst sees CEO Mark Zuckerberg’s brainchild in stellar standing when it comes to battling the other tech leaders for “mindshare.”

Therefore, ahead of quarterly earnings that could very well trounce all expectations, the analyst reiterates an Outperform rating on FB stock with a $225 price target, which represents a 24% increase from current levels. (To watch Pachter’s track record, click here)

More bullish than the Street, the analyst looks for Facebook to amass $10.18 billion in revenue against consensus of $9.84 billion and $1.44 in EPS, above the Street’s $1.28. As far as Pachter assesses the impact of sluggish ad load growth concerns, the Street’s revenue expectations suggest a decline that is simply too “conservative,” especially when taking under account that the company’s revenue has seen a meaningful climb in the last four consecutive quarters: 56%, 51%, 49%, and 45%. For the third quarter, the analyst anticipates FB will see 45% in revenue growth, more confident than the implied consensus growth forecast of 40%. In terms of monthly active user (MAU) growth, the analyst looks for a sequential 66 million jump to 2.07 billion total MAUs along with sequential daily active user (DAU) growth expectations of 50 million, taking the total to 1.37 billion DAUs in Facebook’s corner. Highlighting the third quarter was Facebook’s first to show off Instagram Stories ads coupled with a slew of new ad products from Value Optimization to Lookalike Audiences, the analyst has high expectations ahead of tomorrow’s showcase.

Pachter believes, “We expect Facebook to continue its rapid growth overseas and to increase monetization of under-penetrated Instagram, WhatsApp, and Messenger over the coming years. We view Facebook as well-positioned to defend itself from competition for user mindshare and attention from other apps, as its initiatives around the camera and augmented reality can leverage its massive user base and suite of applications to streamline adoption and drive higher engagement.”

Praising the company’s investment strategy that pays key attention to valuing new products, the analyst anticipates sustained revenue coupled with profit gains to keep flowing for years and years down the line. Facebook-acquired Instagram is a big future driver from Pachter’s eyes, with the analyst expecting the photo sharing platform to bring about a minimum of 15% to 20% in revenue gains between now and 2020. Pachter gives the advantage to Facebook’s Instagram over its arch rival Snapchat, noting: “the introduction of Instagram Stories insulates Facebook from losing users to Snapchat.”

Spotlighting a golden road ahead for Facebook, the analyst concludes: “The July global introduction of ads within Messenger, although currently still in testing, should drive meaningful top-line growth in future years as well, as Facebook finally begins to monetize Messenger’s 1.3 billion MAUs. In 2019 and beyond, we expect Facebook to deliver significant operating leverage as its new initiatives begin to pay off and as its operating expense growth moderates.”

Wall Street tends to agree that this social media leader is a top pick, considering TipRanks analytics demonstrate FB as a Strong Buy. Based on 28 analysts polled by TipRanks in the last 3 months, 26 rate a Buy on Facebook stock, 1 maintains a Hold, while 1 issues a Sell on the stock. The 12-month average price target stands at $200.77, marking a nearly 12% upside from where the stock is currently trading.

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