All eyes will be on Facebook (FB) next Wednesday, when the internet giant is expected to release fourth-quarter earnings.
This past year was the most difficult year for the social media giant since its IPO, as congressional hearings and data misuse scandals turned investors away from the stock, while users have began to lost trust in the once-beloved social network. But even amid the chaos, Facebook’s ability to target ads to specific users is unparalleled, which makes it an extremely appealing advertising platform and a money-making machine. So that’s where investors are perplexed; while the noise around the company is bringing sentiment down, the company’s financials are still second-to-none.
Baird analyst Colin Sebastian is in the second camp. The analyst reiterates his Outperform rating on FB stock with $195 price target, which implies about 30% upside from today’s closing price.
According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, top analyst Colin Sebastian has a yearly average return of 21.7% and a 68% success rate. Sebastian is ranked #27 out of 5,117 analysts.
Sebastian points out that, “despite management distractions,” he expects “a solid Q4 report.” The analyst says his recent customer survey “suggested stable usage trends in western markets heading into the new year,” even as there were mass calls to delete Facebook after 2018 data misuse and privacy scandals.
Sebastian looks to non-platform products as drivers of growth. For example, he estimates that “Instagram accounted for $12-$14B of revenue in 2018, and will exceed $20B in 2019 (representing ~30% of total FB ad revenues.).” The analyst says that users are nearing to spend as much time using Instagram Stories — a new product that rivals SnapChat — as they do on Instagram’s feed. As “brand campaigns in Stories are proving more popular with advertisers,” this “bodes well for prospects of pricing convergence between Newsfeed.
Facebook heads into 2019 with many operational challenges. For example, while COO Sheryl Sandberg was once touted as a US presidential candidate and served as the company’s most-beloved ambassador, a scathing New York Times report on her involvement with data and privacy misuse is making some investors reconsider her place in the company. Furthermore, some see Facebook upper management as completely out of touch with the concerns of the general public and Congress, adding fuel to investors fire.
But Facebook has been protected by the most important metric in investing — the numbers. The company is among the most profitable on the stock market, and there is no sign that revenue will stop growing. As a result, analysts have hung on to the stock even amid the crosswinds. Out of 40 analysts polled by TipRanks in the last 3 months, 33 are bullish on Facebook stock, 5 remain sidelined, while only 2 are bearish on the stock. With a return potential of nearly 23%, the stock’s consensus target price stands at $183.89. (See FB’s price targets and analyst ratings on TipRanks)