Facebook Inc (NASDAQ:FB) investors are sending shares on a just under 2% surge this morning following what one of Wall Street’s best performing analysts is commending as a “solid” fourth quarter showcase. Revenue gains were not the only number that has left the bull dazzled, considering advertising metrics soared this quarter with average revenue per user (ARPU) growth likewise yielding a beat.
Top analyst Michael Graham at Canaccord spotlights a “focus on high-quality engagement” from the social media titan and sings the praises of a robust quarter that saw the company rocket an “impressive” 44% in revenue growth (not factoring in foreign exchange impact), and bring to the table a “sharp” operating margin expansion.
In reaction, the analyst reiterates a Buy rating on FB stock while hiking the price target from $230 to $240, which implies a close to 27% upside from current levels.
“While a temporarily high tax rate hit GAAP EPS by $0.77 and management commentary around user engagement impacted the immediate reaction to the quarter, we find fundamentals very much intact. We applaud FB’s moves to improve the ‘quality’ of the user experience and believe recent News Feed changes (discussed below) are essentially a mechanism for reducing ad load and making the platform more constructive. We continue to believe that any slowdown in time spent will be compensated for by higher-quality time spent, and that any trimming of ad load will be compensated for by higher ad pricing,” highlights Graham.
Meanwhile, the analyst cheers that CEO Mark Zuckberg’s brainchild is delivering advertising metrics that “continue to impress,” even as monthly active users (MAUs) came up a bit short of consensus expectations and growth hit the biggest deceleration in five years. Pinpointing an over 2.1 billion user base, the rate of growth proved solid, landing in the mid-teen digits. Daily active users (DAUs) likewise turned out to be a miss against the Street’s forecasts, as the engagement rate is “modestly contracting.” Yet, global ad ARPU gains proved strong, with growth outclassing consensus and accelerating forward. Ad impression growth for the quarter slowed down from last quarter’s 10% to 4% as average price per ad impression rose 43%, an acceleration from the third quarter’s 35%. The analyst writes, “This is consistent with recent trends, and we believe recent and ongoing News Feed changes […] will continue to impact these metrics.”
With Facebook lasering in on prioritizing social interactions to become increasingly “meaningful” rather than how much time users are spending on the site, the analyst closes on a bullish note, ‘liking’ the News Feed changes. News items will now circulate from more trusted and better-known sources, moving forward, with videos of meaning trumping those that are simply popular. “Taken together with slower ad load, we believe these changes will strengthen the user experience and lead to more engaged users, ultimately driving the long-term advertising business,” Graham surmises.
Michael Graham has a very good TipRanks score with a 62% success rate and a high ranking of #142 out of 4,755 analysts. Graham yields 16.1% in his annual returns. When recommending FB, Graham earns 29.6% in average profits on the stock.
TipRanks suggests a strong bullish analyst consensus backing Facebook stock. Out of 32 analysts polled by TipRanks in the last 3 months, 29 rate a Buy on Facebook stock, 2 maintain a Hold, while 1 issues a Sell on the stock. Is the social media king overvalued or undervalued based on these analysts’ expectations? Consider that the 12-month average price target of $222.07 boasts a substantial nearly 19% potential upside from where the stock is currently trading.