Market Overview

Facebook Earnings Breakdown: After A Blowout Quarter, Could The Momentum Continue?

Related FB
Walmart (WMT) Gets Instagram CEO and Founder on Board
LookSmart, Ltd. and Voltari Corp Pop And Drop On Facebook Inc Atlas News
Deal Frenzy: 2014 Sees Record M&A Volume (Fox Business)

Facebook (NASDAQ: FB) reported its first quarter results on Wednesday. The popular provider of various social media platforms earned $0.34 per share, beating the consensus estimate by 10 cents. Revenue of $2.5 billion came ahead of analyst expectations by $160 million. Net income for the quarter surged to $642 million from $219 million in the same quarter last year.

Earnings breakdown

Total revenue from advertising rose 82 percent year-over-year to $2.27 billion. Of this figure, approximately 59 percent was derived from mobile advertising. In the same quarter a year ago, mobile advertising revenue represented only 30 percent of total advertising revenue.

North America accounted for 47 percent of Facebook's revenue with the average revenue per user (ARPU) rising to $5.85 from $2.35 a year ago. North American ARPU remains significantly above Europe at $2.44 (up from $0.84), Asia at $0.93 (up from $0.20) and elsewhere at $0.70 (up from $0.20).

Daily active users (DAUs) totaled 802 million in the quarter, an increase of 21 percent year-over-year while monthly active users (MAUs) were 1.28 billion, an increase of 15 percent year-over-year. Mobile MAUs totaled 1.10 billion, an increase of 34 percent year-over-year.

Related: Apple Earnings Roundup: iPhone Strength, Stock Split, Buybacks And More

Facebook announced that its Chief Financial Officer David Ebersman will leave the company on June 1 to return to his previous career in the healthcare industry. He will be replaced with David Wehner, Facebook's Vice President of Finance and former Zynga executive.

During Facebook's conference call, management cautioned investors not to expect any material revenue contribution from Instagram, video advertising or an advertising network.

With Facebook reporting another positive quarter that could satisfy even the most bullish forecast, the question investors need to ask is will the company's momentum continue going forward.

Citi: Facebook delivered

Mark May, analyst at Citigroup believes that Facebook's quarterly results merely reaffirms an already existing positive thesis. The results were so positive that May believes it was good enough to meet even the most bullish forecasts.

Facebook's momentum continued in the quarter with year-over-year growth in advertising revenue of 82 percent. Facebook's growth in advertising revenue rose 76 percent In the previous quarter and 66 percent before that. Facebook was also able to show improvements in its MAU growth, mobile monetiziation and user engagement.

“All that said, we view the results as re-affirming our positive thesis,” May wrote in a note to clients on Thursday.

May believes that factors driving short-term growth (such as introduction of video advertising) are also sustainable in the long run and will contribute to further growth and gains, and potential upside.

Despite May's positive view, his price target of $85 and Buy rating remains unchanged.

Deutsche Bank: Solid across the board

Ross Sandler, research analyst at Deutsche Bank believes that Facebook continues to deliver on all fronts.

“1Q was solid across the board and management's tone continues to be upbeat,” Sandler wrote in a note to clients on Thursday.

Sandler noted that advertising revenue remains “the standout” with advertising revenue surging 88 percent year-over-year in North America. Engagement continues to improve across all regions and 105 million app installs in the quarter implies healthy growth in other areas and execution on a diversification strategy.

Sandler cautions investors that Facebook's momentum has to end at some time soon.

Facebook is operating in a difficult environment with such a large bullish sentiment, a mathematical deceleration coming in future quarters and an overall bearish climate in the market surrounding Internet and “momentum” stocks.

“Facebook performance has been nothing short of remarkable for the past year, but is heading into a stage of meaningful growth deceleration and limited upside to consensus,” Sandler cautioned in his note.

Nevertheless, Sandler reiterated a Buy rating with a price target raised to $85 from a previous $76.

Related: Ford Earnings Preview: Eyes On China & Europe

Macquarie: Expect some disappointment

Ben Schacther, analyst at Macquarie was impressed with Facebook's earnings results, but cautioned investors that there could be potential bumps in the road.

Schacther noted that Facebook's announcement that operating expenditures will ramp significantly in 2014; in addition to Instagram, video advertising and in advertising not contributing significantly will make some investors disappointed.

“The bottom line is that while we continue to like Facebook for the long term, the current businesses (as we know them) are somewhat fairly valued at current levels,” Schacther wrote in a note to clients on Thursday.

Schacther further explained that monetization initiatives and new ventures such as the potential for Graph Search will drive the stock higher, it may take some time to do so.

Finally, Schacther is counting on Facebook from announcing a “meaningful surprise” out of Facebook's developer conference next week. Otherwise, Schacther believes that shares could be range bound in the near-term.

Shares are reiterated Outperform rated with a price target unchanged at $73.

Elsewhere on the Street

Heather Belilini of Goldman Sachs reiterated a Buy rating and an unchanged price target of $78.

Doug Anmuth of JPMorgan reiterated an Overweight rating and an unchanged price target of $80.

Brian Wieser of Pivotal Research Group reiterated a Buy rating with a price target raised to $74 from a previous $72.

Mark Mahaney of RBC Capital Markets reiterated an Outperform rating with a price target raised to $86 from a previous $76.

Robert Peck of Suntrust Robinson Humphrey reiterated a Buy rating with a price target raised to $72 from a previous $70.

Latest Ratings for FB

DateFirmActionFromTo
Sep 2014NeedhamMaintainsBuy
Aug 2014Janney CapitalDowngradesBuyNeutral
Jul 2014BarclaysMaintainsOverweight

View More Analyst Ratings for FB
View the Latest Analyst Ratings

Posted-In: Ben Schacther Brian Wieser David EbersmanAnalyst Color Earnings News Price Target Analyst Ratings Best of Benzinga

 

Related Articles (FB)

Around the Web, We're Loving...

Partner Network

Get Benzinga's Newsletters