Facebook (NASDAQ:FB) essentially told investors to never bet against it.
The social media giant released first-quarter earnings Wednesday, beating analyst estimates on revenue, which grew to $15.08 billion, or 26% higher than this time last year. Because Facebook set aside ~$3 billion for an expected FTC fine (stemming from the Cambridge Analytica scandal), the company saw a decrease in net income. But without this one-time expense, EPS would have squashed estimates.
On the positive news, Rosenblatt analyst Mark Zgutowicz maintained a Buy rating on Facebook stock, with a $242 price target, which implies about 25% upside from current levels. (To watch Zgutowicz’s track record, click here)
Expectations were low for the social network, but Q1 results surely surpassed the results many thought would be coming. Zgutowicz says Facebook can credit its current products for its success — not the “what’s next.” For example, he says, “News Feed (NF) and Instagram Feed (IGF)… continues to drive the stock higher…” but still maintains that “the ‘what’s next’ remains important,” highlighting Instagram Story Ads and Watch.
While the analyst conceded that “Facebook has no doubt faced many hurdles over the past several months,” he is relieved that average revenue per user in developed markets “have been unfazed.” The company continues to rely heavily on Newsfeed and US and Canada users, who, on average, generate more than double the revenue than their European counterparts in 2018.
Because of Facebook’s success with Newsfeed and its Instagram Feed, Zgutowicz believes the company “has breathing room to invest and refine its next social and commerce vectors including Story Ads, Instagram (IG) Checkout, Messaging 2.0, and Watch.” The analyst points to the large markets that their products would tend to, including “1.5B Story daily users, 130M IG daily shoppers, and 100M daily Watch watchers.”
Moving forward, the analyst expects Story ad (meaningful) monetization to come first, followed by IG Checkout ad related revenue. Zgutowicz says Story monetization requires “meaningfully better than current return on ad spend (ROAS) aided by continued creative learnings with a broader advertiser base,” while IG Checkout “needs to work out the kinks in a small beta test and ready for scale.”
All in all, Facebook may be a fun stock to bash, but it’s clearly a Wall Street favorite. TipRanks analysis of 41 analysts shows a consensus Strong Buy. 37 of those analysts rate the company a Buy, while four are Holding. The average price target among these analysts stand at $215.27, suggesting the stock could rise 12% in the next 12 months. (See FB’s price targets and analyst ratings on TipRanks)