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Instagram, Messenger Monetization Set Facebook Up Nicely For Q2

Instagram, Messenger Monetization Set Facebook Up Nicely For Q2

Deutsche Bank said in a note Friday it sees Facebook Inc (NASDAQ: FB)'s Instagram, original video and Messenger monetization as tailwinds ahead.

Facebook is scheduled to release its second-quarter results after the market close on July 26.

Core Newsfeed, Instagram To Help Ad Growth

Previewing the upcoming second-quarter results, the firm said it is upwardly revising its ad revenue growth estimate for Facebook to 44.5 percent, although the updated estimate is below the consensus estimate of 45.6 percent.

Analyst Lloyd Walmsley attributed the optimistic expectation concerning ad revenue growth to strong trends at core newsfeed and Instagram. The analyst also sees upside potential to his $5 billion non-GAAP operating income estimate.

Specifically, the firm raised its estimates for Instagram to $4.9 billion from $4.6 billion. The firm also sees upside to its $8.7 billion estimate for Instagram in 2018, given the continued strong user growth, ramp ad load, new ad formats and strong feedback from advertisers.

Pricing Rising

As ad load and impression growth slows, the firm expects pricing to continue to rise, given positive customer feedback concerning compelling ad ROIs and as was the case in the first quarter.

Additionally, the firm expects cautious commentary around slower second half ad revenue growth and investment in operating expenditure going forward.

See also: Forget FANG, Trade FATS: A Preview Of Facebook, Alphabet, Twitter And Snap Earnings

The firm sees the Street estimates for 2018 going higher, as the company ramps monetization in Instagram, including Stories ads, rolls out more FB original video content and begins to monetize Messenger.

Opex Guidance May Be Trimmed

Meanwhile, the firm expects slightly lower than forecast capital expenditure and capex growth.

Though near term, Deutsche Bank expects the delay around the original video content initiative to help margin, it is of the view that the broader investment theme is unlikely to abate into the second half and 2018.

"So we have less confidence this year that FB will walk down opex guidance, particularly this early in the year," the firm said.

Here are the key catalysts as seen by Deutsche Bank:

  • Increasing ad loads in Instagram, in general and with Stories.
  • Expanding ad loads in Messenger, suggesting upside in 2018.

"We expect Facebook's original video content later this year to also help investors gain comfort in ad revenue growth in 2018 and beyond," the firm said.

As such, Deutsche Bank maintains its Buy rating for the company's shares and raised its price target from $185 to $189.

The firm raised its 2017 ad growth estimate to 40 percent, excluding forex, from 39 percent.

Latest Ratings for FB

Aug 2019AssumesBuy
Jul 2019MaintainsOutperform
Jul 2019MaintainsBuy

View More Analyst Ratings for FB
View the Latest Analyst Ratings

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