Wall Street's Top Pros Dissect Facebook's Earnings
Here are what Wall Street's top analysts are saying.
Morgan Stanley: Bullish Thesis Continues
Brian Nowak of Morgan Stanley commented in a note that Facebook's user monetization trends continue to improve as average revenue per user (ARPU) growth accelerated 300 basis points to 39 percent year-over-year.
Nowak noted that North America advertising ARPU accelerated by 140 basis points in the second quarter, growing 49 percent year-over-year, while International advertising ARPU accelerated by 370 basis points to 38 percent year-over-year.
Nowak also argued that the growth in International ARPU "speaks to the global runway" even though international users are monetize at 20 percent of the North American level – a gap that he expects to narrow over time.
Bottom line, Nowak argued that it is important to look at Facebook's constant ad dollar growth and when doing so it is obvious the business is "stable" and "accelerating."
Shares remain Overweight rated with an unchanged $110 price target.
Goldman Sachs: ‘We Like It'
Heather Bellini of Goldman Sachs commented in a note that on a constant currency basis, ad revenue grew 55 percent year-over-year and did not decelerate from last quarter. As such, the analyst sees Facebook ad story (especially mobile) continuing on a "strong trajectory" with potential upside drivers (Instagram, video) in the back half of 2015.
Bellini also noted that her checks suggested a "growing base" of brand advertisers competing in auctions with traditional direct response marketers, which will serve as an "incremental driver" of pricing growth.
Shares remain Buy rated with a price target raised to $110 from a previous $102.
Stifel: Looking Beyond The Quarter
Scott Devitt of Stifel commented in a note that Facebook's management hinted of a "continued but modest" deceleration in revenue through the back half of 2015. The analyst suggested that the company's commentary around Instagram's monetization sounded "more conservative than recent speculation" would suggest.
However, Facebook also disclosed video ads are a "meaningful" contributor to growth today, prompting the analyst to suggest that the company's story "increasingly becomes one of long-term sustained growth" given near-term catalysts in video ads, Instagram monetization, off-platform monetization. Long-term catalysts include Messenger and WhatsApp monetization along with "speculative plays" like Oculus.
Bottom line, Devitt pointed out third-party reports that suggest Facebook has "significantly" increased its click-through-rates, now at roughly half the rate of search and around 15 times the average of traditional display ads which "bodes well" for the company's long-term ability to continue gaining share in the global advertising market.
Shares remain Buy rated with a price target raised to $108 from a previous $95.
Pacific Crest: Valuation, Expectations Key Concerns
Evan Wilson of Pacific Crest commented in a note that despite Facebook's "strong" second-quarter results, the company's valuation and investor's high expectations "prevent us" from recommending Facebook shares.
Wilson continued that Facebook's opportunity in the ad market is "still significant" but multiple expansion is "difficult" given the "sad state" of the company's comparable group and consensus estimates are already factoring in "massive" market share gains.
Wilson pointed out that shares of Facebook are trading at 12 times his 2016 EV/S estimate and is also trading at approximately 4.5 times its total addressable market (the global display advertising market including mobile, social and video). As such, the current valuations "limits" upside unless the company is able to deliver "big upside" to estimates.
Shares remain Sector Weight with no assigned price target.
Elsewhere On the Street
- Raymond James maintained an Outperform rating with a price target raised to $115 from a previous $110.
- Deutsche Bank maintained a Buy rating with a price target raised to $115 from a previous $100.
- Bank of America maintained a Buy rating with an unchanged $105 price target.
- Macquarie maintained an Outperform rating with a price target raised to $106 from a previous $92.
- Mizuho Securities maintained a Buy rating with a price target raised to $107 from a previous $104.
- Axiom maintained a Buy rating with a price target raised to $120 from a previous $117.
- Barclays maintained an Overweight rating with a price target raised to $105 from a previous $98.
- Credit Suisse maintained an Outperform rating with a price target raised to $110 from a previous $106.
Latest Ratings for FB
|Oct 2016||Credit Suisse||Maintains||Outperform|
|Sep 2016||JP Morgan||Maintains||Overweight|
|Sep 2016||Loop Capital||Initiates Coverage on||Buy|
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