Jon Hadad

About the Author Jon Hadad

Jon Hadad graduated from the University of Delaware with a degree in political science. Prior to joining the Smarter Analyst team, he was an industry analyst at a New York research firm.

Buy Facebook (FB) Stock Into Earnings, Says Wedbush

Facebook (FB) is slated to release earnings after Wednesday’s close, as investors are eager to see the numbers behind the stock’s recent jump.

The report will give investors a timely view into the social giant’s business. Though revenue growth is expected to decelerate, Facebook is by no means growing at a slow pace; first-quarter revenue was up 26% year over year. Investors will also look to see if Stories has seen any significant growth in users. Finally, the report will tell investors how strong ad impressions growth has been, which plays an important role in revenue.

As Facebook’s earnings are just one day away, at least one analyst expects big things. Wedbush analyst Michael Pachter maintains an Outperform rating on FB stock, with a $220 price target. (To watch Pachter’s track record, click here)

Overall, Pachter expects “Facebook to continue its rapid growth overseas and to increase monetization of under-penetrated Instagram, WhatsApp, and Messenger.” The analyst is calling for revenue of $16.40 billion and EPS of $2.03, compared to consensus estimates of $16.51 billion and $1.87, respectively. The analyst anticipates global sequential MAU (monthly active users) growth in Q2 of approximately 40 million, down from growth in Q1 of 55 million, and slightly up from growth in Q2:18 of 38 million.

The biggest piece of news that came out of Facebook recently will not be factored quantitatively in the release. Libra, Facebook’s crypto project, was announced this summer, and many believe it will help popularize digital currency given Facebook’s massive user base and ability to patrol the platform. Using the currency, users will be able to purchase items from one another, and from third-party sellers. This is expected to directly help boost Facebook revenue, as the company would take a cut of each transaction. But hurdles remain, most importantly government discussion on the matter. 

One large piece that investors are looking at is the FTC fine of $5 billion. But Pachter says the fine was “largely factored into operating expense growth guidance,” so the report should not show much surprise to this end. But overall and as a result of the fine, the analysts estimates “that EPS could be impacted by up to $0.70 from the treatment of Facebook’s FTC settlement charge.’ 

All in all, even as Facebook continues to be a target of government inquiries and hearings, Wall Street still loves the stock. TipRanks analysis of 37 analysts shows a consensus Strong Buy, with 33 saying Buy, while four recommending Hold. The average price target among these analysts stands at $222.56, which represents an 11% upside from current levels. (See FB’s price targets and analyst ratings on TipRanks)


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