Don’t Expect These Earnings to Save Facebook (FB) Stock; Top Analyst Weighs In

SunTrust top analyst Youssef Squali continues to support Facebook (FB) stock, while keeping his rating and price target exactly the same as before — Buy, $200. However, Squali expects mixed results from the upcoming third-quarter earnings report, which will be released tomorrow after the market closes.

Ahead of earnings, Squali conversed with marketers who say Facebook is still number 1 when it comes to linking advertisers to their specific target audiences on Facebook. Despite the bad press and stricter regulations for the company, marketers anticipate a generous return on investment, due to the sizable audiences you can target on the social media site. Squali also notes management at Facebook is serious about protecting the company from security risks, which he predicts will improve long-term health. The analyst looks especially to opportunities from Instagram and Facebook Messenger as a note of positivity for the stock.

While the analyst considers Facebook to be a strong investment, he writes that revenue growth will likely fall: “We believe another quarter of negative headlines, FX headwinds, prioritization of pushing users towards the under-monetized Stories, and on-going friction from GDPR will cause revenue growth to decelerate further. We estimate 3Q18 ad revenue growth at 34% y/y (+34.5% ex-FX), reaching $13,595 million vs. +42.3% in 2Q18,” Squali said.

Overall, the analyst says estimates for this quarter are virtually in line with Consensus: “For 3Q18, we’re at revenues, adj. EBITDA, and GAAP EPS expectations of $13,818M/ $7,708M/$1.50 vs. consensus of $13,765M/$8,085M/$1.46, respectively.”

Squali goes on to note he believes user trends in North America and Europe are flattening out, while monthly active users (MAU) in Asia and the rest of the world will continue to grow during this fiscal year.

“We expect Facebook to grow FY18 revenues and adj. EBITDA at ~37% and ~23% y/y, respectively. Our 2018 revenue/adj. EBITDA estimates are $55,544M/$33,048M vs. Street expectations of $55,522M/$33,348M. We note that our adj. EBITDA margin for FY18 drops to ~60% from ~66% in FY17 due to the aforementioned investments, with more contraction in FY19 and FY2,” Squali said.

According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, 5-star analyst Youssef Squali has a yearly average return of 18.5% and a 65% success rate. Squali has a 69% average return when recommending FB, and is ranked #60 out of 4,887 analysts.

Though this top analyst isn’t jumping for joy, his forecast has a positive outlook.  Most analysts on Wall Street are rooting for Facebook. TipRanks analytics showcase FB as a Strong Buy. Based on 30 analysts polled by TipRanks in the last 3 months, 26 rate a Buy on FB stock while 3 maintain a Hold and one says it’s a Sell. The 12-month average price target stands at $200.33, marking a nearly 38% upside from where the stock is currently trading. (See FB’s price targets and analyst ratings on TipRanks)


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