Facebook Inc (NASDAQ:FB) is raring to deliver what top analyst Mark Mahaney at RBC Capital expects will be a solid third quarter print come Wednesday, thanks to signals of rumbling online advertiser momentum and continued rapid-fire user growth/engagement.
In a bullish quarterly preview, the analyst sets expectations more confident than consensus, reiterating an Outperform rating on FB stock with a $195 price target, which represents a 9% increase from where the stock is currently trading.
For the third quarter, Mahaney calls for $10.05 billion in revenue, $6.21 billion in adjusted EBITDA, and $1.30 in GAAP EPS. The analyst’s expectations, which signify 43% year-over-year growth in revenue and 44% year-over-year growth in GAAP EPS (excluding the effects of foreign exchange volatility) are just over the Street’s estimates angling for $9.85 billion in revenue, $6.20 billion in adjusted EBITDA, and $1.27 in GAAP EPS. Regarding advertising revenue growth (likewise ex-FX), the analyst models a 45% surge, which is a dip from the second quarter’s 49%, even though the analyst notes this was “on a 4pt easier comp.” Notably, this has been a year of “aggressive investment” for Facebook, as stated by the management team itself, and the analyst projects a 43.1% GAAP operating margin as well as a 61.8% Adjusted EBITDA margin, both which have fallen in year-over-year comparisons.
Mahaney predicts there is a better chance for upside than downside when it comes to the social media titan’s ability to meet current consensus expectations. When looking at the guide for the year, the analyst anticipates Facebook will maintain its GAAP operating expenses growth outlook of 40% to 50%, noting that last quarter the management team already “tightened” these expectations from 40% to 50%.
Especially after Mahaney’s 10th AdAge Advertiser survey from the beginning of the month, the verdict is loud and clear on the successful prospects ahead for Facebook and its acquisition Instagram: “All in, Google and Facebook had the strongest results — specifically, 40% of GOOG advertisers and 26% of FB advertisers currently spend more than 30% of their Online budgets on these platforms, an increase from previous surveys. Looking ahead, FB and GOOG advertisers showed increasing intent to spend more on these platforms, and the ROI trends here remain consistent with a very positive skew. Online Ad Budgets are continuing to concentrate to these two platforms. Also, we found clearly positive future spend intentions for Instagram, which we asked survey respondents about for the first time.”
Ultimately, “Facebook has continued to grow users at an impressively robust pace off a very large base,” contends the analyst, anticipating the titan will hit 14% year-over-year growth to 2.04 billion in monthly active users (MAUs).
Mark Mahaney has a very good TipRanks score with a 74% success rate and a high ranking of #20 out of 4,700 analysts. Mahaney garners 24.3% in his annual returns. When recommending FB, Mahaney realizes 27.7% in average profits on the stock.
Wall Street backs Mahaney’s bullish bet, considering TipRanks analytics exhibit FB as a Strong Buy. Out of 34 analysts polled by TipRanks in the last 3 months, 31 are bullish on Facebook stock, 2 remain sidelined, and 1 is bearish on the stock. With a return potential of nearly 12%, the stock’s consensus target price stands at $199.00.