The Street's Reaction To Facebook's Q2: Bulls Turn More Bullish

Social media giant Facebook, Inc. FB reported second-quarter results Thursday that were highlighted by 11% revenue growth and an expansion of its total monthly user base across all platforms from 2.99 billion last quarter to 3.14 billion.

Here's how the Street reacted. 

The Facebook Analysts: Raymond James analyst Aaron Kessler maintains a Strong Buy rating on Facebook's stock with a price target lifted from $240 to $280.

UBS analyst Eric Sheridan maintains a Buy rating on Facebook's stock with an unchanged $242 price target.

BofA Securities analyst Justin Post maintains a Buy rating on Facebook's stock with a price target lifted from $265 to $290.

Credit Suisse analyst Stephen Ju maintains an Outperform rating on Facebook's stock with a price target lifted from $305 to $315.

Needham analyst Laura Martin maintains a Hold rating on Facebook's stock.

Related Link: Facebook Surges After Big Q2 Earnings Beat, 12% User Growth

Raymond James Recaps Facebook Q2: Facebook reported a "solid" second quarter that came in better than expected across multiple metrics, Kessler said in a note. Revenue of $18.7 billion was 8% ahead of the Street's estimates and rose 11% year-over-year.

Ad revenue was 8% ahead of expectations at $18.3 billion, Adjusted EBITDA of $9.4 billion beat estimates of $7.7 billion and GAAP EPS of $1.80 exceeded expectations of $1.39.

The social media company also reported that monthly active user growth accelerated from 9.6% year-over-year in the first quarter to 11.9%, while daily active users also accelerated from 11.0% to 12.5%, Raymond James noted. 

UBS Has 4 Positives, 3 Negatives On Menlo Park: Facebook's second-quarter report includes four positive takeaways and three negative readouts, Sheridan said in a note. On the positive front:

  • Foreign exchange neutral revenue growth of 12% is attributed in part to 180 million businesses using FB tools.
  • DAU growth of 12% reflects increased engagement.
  • Management's third-quarter revenue guidance of 10% was above the Street's estimates.
  • Expense growth of 4% was lower than expected.

On the other hand, the three negative readouts are as follows, the analyst said:

  • iOS changes will impact fourth-quarter revenue growth.
  • Price per ads were down 21% amid lower advertiser demand.
  • Capex was higher than expected and management increased its full-year capex guide.
  • BofA Says Outlook Commentary Mixed: Facebook's management said its July ad revenue so far is up just 10%, implying deceleration from May and June, partly due to a "modest" advertiser boycott, Post said in a note.

The company also noted it expects third-quarter growth to be 10% amid headwinds from the economy, slowing engagement and Apple IDFA permission changes, the analyst said. 

Facebook also narrowed the high end of its expense guidance for 2020 from a range of $52 billion to $56 billion to a range of $52 billion to $55 billion. This new outlook is "reasonable" and perhaps even conservative, he said. 

Credit Suisse's Facebook Investment Case: The case for buying Facebook's stock is based on a "rapid push" for businesses to move online, especially small-and-medium-size businesses, Ju said in a note.

The rush even contributed to Facebook lowering the revenue contribution from the top 100 advertisers from 20% to 16%, the analyst said.

Facebook ended the quarter with 180 million total businesses using the platform versus 140 million last quarter.

Over the longer-term, Facebook's monetization initiatives across Messenger and WhatsApp are underestimated by the Street, he said.

The company should see faster free cash flow growth on greater efficiency, in Credit Suisse's view. 

Needham Sees 3 Areas Of 'Drama': Facebook faces three areas of "drama" that investors should be aware of, Martin said in a note.

The first relates to the brand advertising boycott, including multiple Dow Jones component companies pulling their advertising activity, the analyst said. 

Since nearly all of Facebook's ad revenue is generated through real-time auctions based on supply and demand, advertisers may increase their spending when prices fall enough, she said. 

Second, political ads on Facebook represent "billions of dollars worth of drama," although ads from politicians will likely account for less than 0.5% of total revenue in 2020, Martin said. 

"This tiny revenue stream draws enormous criticism from regulators and consumers."

Facebook CEO Mark Zuckerberg and other tech giants CEOs testified before the House of Representatives on Wednesday. It was apparent from the questions that regulators feel these companies have too much power, threaten competitors and are generally "not good for consumers or democracy," Martin said. 

FB Price Action: Shares of Facebook hit a new all-time high Friday and were trading 8.2% higher at $253.73 at last check. 

Related Link: Big Tech Stocks Among The Most Shorted In The Market

Posted In: Aaron KesslerBofA SecuritiesCredit SuisseEric SheridanJustin PostLaura MartinNeedhamRaymond JamesStephen JuUBSAnalyst ColorEarningsNewsGuidancePrice TargetReiterationTop StoriesAnalyst Ratings