William Blair More Than Impressed by Facebook Inc (FB) and Apple Inc. (AAPL) Earnings Beat

William Blair analysts are commending Facebook Inc (NASDAQ:FB) and Apple Inc. (NASDAQ:AAPL) after these two stock giants roared into a new earnings season with thriving quarterly prints and growth opportunities beyond the bounds. Chiefly, the risk Facebook runs is its operating expense growth factor, whereas Apple must be able to withstand foreign exchange margin pressures. Yet, these analysts see more reasons to celebrate than to be concerned and accordingly approach both Facebook’s as well as Apple’s prospects from a favorable perspective. Let’s dive in:

Facebook User Growth Stays Strong, High Operating Expense Guide Likely Conservative

After Facebook revealed stellar key operating metrics, with monthly and daily active user growth sustaining consecutive re-acceleration and beat-after-beat in its fourth quarter print, William Blair analyst Ralph Schackart sees glittering roads ahead for the stock. On back of robust fourth-quarter results, the analyst reiterates an Outperform rating on FB without suggesting a price target.

For the fourth quarter, the social media giant bested the Street’s expectations in ad revenue 3.8% over, steamrolling to a 53% rise year-over-year. Additionally, FB’s GAAP EPS of $1.21 reached ahead of the consensus projection of $1.04. Monthly and daily active user growth continued its respective fourth and third back-to-back quarter surges, once again outperforming the Street.

For 2017 non-GAAP expenses, the FB management team has guided to 47% to 47% year-over-year growth, slightly more than the Street anticipated at 41% growth. Additionally, impressions climbed 49% year-over-year and pricing saw 3% growth.

Schackart notes, “The Street was previously at 41% year-over-year growth, and investors we spoke with intraquarter suggested 40% year-over-year operating expense growth would likely ‘drive shares higher’ after earnings and 45%-55% growth would largely be seen as disappointing, based on our conversations. Given that the stock is flat in the after-market, we believe investors are anticipating Facebook to deliver operating expense growth at the lower end of the range, as it has for the last four years.”

“Facebook core drove the outperformance again as the engine continues to deliver strong ROI for its customers and will likely continue to deliver more positive estimate revisions throughout 2017, based on client feedback that believes Facebook is gradually increasing pricing (at a slower rate than it could) to ensure clients continue to have strong advertising campaign ROIs.”

Throughout the next year, the analyst predicts FB shares have the potential to trade closer to 15 times EBITDA, the giant’s two-year average, concluding that “[…] Facebook is likely setting another conservative outlook on operating expenses,” Schackart surmises. By 2018, the analyst calls for potential share upside of approximately $20.

According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, four-star analyst Ralph Schackart is ranked #455 out of 4,375 analysts. Schackart has a 67% success rate and realizes 12.6% in his yearly returns. When rating FB, Schackart yields 30.5% in average profits on the stock.

TipRanks analytics exhibit FB as a Strong Buy. Based on 37 analysts polled by TipRanks in the last 3 months, 34 rate a Buy on FB stock while 3 maintain a Hold. The 12-month average price target stands at $160.03, marking a 22% upside from where the stock is currently trading.

Apple in Solid Standing as It Prepares to Face Off Against Forex Headwinds

William Blair analyst Anil Doradla highlights Apple’s growth, management, and achievements after the tech giant continues to not only adapt in a competitive, changing environment, but also succeed tenfold. Therefore, in wake of strong first fiscal quarter earnings, the analyst reiterates an Outperform rating on shares of AAPL without listing a price target.

For the first fiscal quarter of 2017, the tech giant impressed with better-than-expected earnings, from $78.4 billion in revenue that outclassed consensus by approximately $1.0 billion, iPhone unit sales of 78.3 million outperforming the consensus forecast of 77.4 million, to GAAP EPS of $3.36, topping the Street by $0.14.

Doradla remains bullish on the giant, as he believes, “Overall, we continue to be impressed with the company’s solid execution, especially against the backdrop of the changing competitive landscape within the smartphone industry. In our opinion, Apple’s steady progress toward higher-margin revenue along with an increasing focus on a sticky ecosystem is transitioning the company toward a recurring (and annuity-like) business model. We came away with two key takeaways from the results. First, the company’s services segment (9.2% of sales) grew 18.4% annually and management outlined the goal to double the services segment over the next four years (implying roughly 19% annual growth). We believe growth in the services segment will provide a cushion that will allow Apple to maintain its corporatewide gross margins in the range of 38% to 40%.”

Secondly, looking ahead, though the analyst anticipates “foreign exchange headwinds to continue to weigh on Apple’s results” and pressure its gross margins, he maintains confidence the giant’s gross margin profile will not waver from its range of 38% to 40%.

As usual, we like to include the analyst’s track record when reporting on new analyst notes to give a perspective on the effect it has on stock performance. According to TipRanks, five-star analyst Anil Doradla is ranked #256 out of 4,375 analysts. Doradla has a 66% success rate and gains 17.1% in his annual returns. When recommending AAPL, Doradla garners 16.2% in average profits on the stock.

TipRanks analytics demonstrate AAPL as a Strong Buy. Out of 34 analysts polled by TipRanks in the last 3 months, 28 are bullish on Apple stock and 6 remain sidelined. With a return potential of 9%, the stock’s consensus target price stands at $140.52.

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