Facebook (FB) went through a rough 2018. After multiple privacy and data scandals, CEO Mark Zuckerberg was forced to testify in front of Congress, as the company dragged through the mud by the media. As a result, the company’s stock lost 40% of its value in the second half of 2018, even as the company continued producing strong financials. But the company seems to be turning a corner on the stock market: Last week, Facebook announced it had surpassed Q4 earnings estimates, sending the stock soaring. FB stock has scored about 30% since the beginning of the year versus the S&P 500’s gain of 9.5%.
Perhaps the company is not yet out of the woods, as US Congressional and European legislation may hamper growth, but JMP Security analyst Ronald Josey is still bullish on the company. Josey reiterates an Outperform rating on FB, while raising his price target to $195 (from $176), which implies nearly 16% upside from current levels. (To watch Josey’s track record, click here)
Josey concedes that “safety and security remain a core focus at Facebook,” but has “renewed confidence that usage, engagement, and monetization can continue to grow meaningfully as investments around Video, Stories, and Messaging, among others, begin to deliver ROI.” Like many other analysts, Josey points to strong financials that should make investors happy.
The analyst points to rising number of users as a boon to the company. Unique users across all platforms (including Facebook, WhatsApp and Instagram) total 2.7 billion, up from 2.6 billion in 3Q18. But perhaps more importantly is the company’s ability to grow revenue: while global monthly users grew only 9% year-over-year, revenue grew 30% year-over-year, to $16.9 billion in the quarter, while margins remain strong at 46.2%.
Looking at the past quarter, the analyst likes improving core Facebook engagement rates, higher unique users across all platforms and the growing success of Instagram Stories, which increased from 400 million DAUs (June) to 500 million DAUs. However, the analyst is mindful that ad pricing decreased 2% in the fourth quarter, while revenue deceleration has continued. Finally, while margins remain healthy, Josey says he sees “gross margin pressures going forward as Facebook hardware ramps.”
Bottom line: Investors always love Facebook’s financials. But the company still faces a number of non-quantifiable challenges this year, most important being regulation. Even amid this threat, Wall Street analysts are still confident in the company. TipRanks analysis of 40 analysts, shows a consensus Moderate Buy; of the 40 analysts, 31 recommend Buy, while 6 say Hold and 3 are selling. There is an average price target of $187.34, which represents an 11% upside. (See FB’s price targets and analyst ratings on TipRanks)