RBC Capital top analyst Mark Mahaney is out with an upbeat research report on Facebook Inc (NASDAQ:FB) on the heels of what he deems “wicked strong” fourth-quarter results. In reaction, the analyst reiterates an Outperform rating on shares of FB while raising the price target from $175 from $170, which represents a just under 29% from current levels.
Mahaney views the reported Q4 earnings as “fundamentally impressive.” For the fourth quarter, the social media giant saw a 51% year-over-year increase in revenue to $8.81 billion, which outclassed the Street’s expectations of $8.44 billion. Meanwhile, advertising revenue saw a 54% year-over-year, hitting $8.63 billion on back of a 49% year-over-year growth in Ad Impressions coupled with 3% growth in Ad Pricing. Particularly, Mahaney praises the giant’s operating margin, which “reached a record-high 64%,” adding, “these are the ‘Net’s strongest fundamentals.”
Though the analyst notes, “’17 investment outlook was more aggressive than expected” with 47% to 57% in opex growth coupled with over $7 billion in capex, he nonetheless lifts estimates, raising revenue for 2017 up 4% to $38.7 billion as well as boosts non-GAAP EPS up 3% to $5.74.
Mahaney is increasingly positive as “FB is pursuing a Tab Strategy – one for Marketplace a la eBay and one for Video a la YouTube. May work, may not. But the upside is potentially dramatic and the downside is limited. In the meantime, Core FB is growing extremely well, with almost unprecedented Ad Revenue growth consistency”.
The analyst points to newer ad formats as a driver of increasing advertiser demand, improved targeting tools and the growing body of evidence that their ads have a high ROI.
Mahaney is encouraged, asserting, “On bottom line, the EPS beat demonstrates substantial leverage in this biz model.”
In response to those more guarded on the giant’s dip in market shares, Mahaney explains, “We believe that’s FB’s current low market shares – 15% of Global Online Advertising & 5% of Global Total Advertising – will help it maintain premium growth for a long time. And FB still has several new large revenue growth drivers (Instagram monetization, Messaging Platform monetization, AR/VR, etc…).”
On the basis of compelling valuation and impressive “best” fundamentals, the analyst views 2017 as a buying opportunity for FB stock, concluding “FB remains our #2 Long after NFLX.”
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, Mark Mahaney is currently the #4 ranked analyst out of 4,382. Mahaney has a success rate of 72% and an average return of 21.2%. When recommending Facebook, Mahaney earns 40.6% in average profits on the stock.
TipRanks analytics indicates FB as a Strong Buy. Based on 36 analysts polled by TipRanks in the last three months, 33 are bullish on Facebook stock and 3 remain sidelined. With an upside potential of 21%, the stock’s consensus target price stands at $160.03.