Why Did These Analysts Increase Facebook Price Targets?
Social media giant Facebook Inc (NASDAQ:FB) reported first-quarter revenue growth of 48% year-over-year. The display of growth for the company’s advertising segments has prompted several price target upgrades from analysts.
The Facebook Analysts: KeyBanc analyst Justin Patterson reiterates an Overweight rating on Facebook and raises the price target from $360 to $414.
Raymond James analyst Aaron Kessler reiterates a Strong Buy rating and raises the price target from $360 to $415.
Needham analyst Laura Martin reiterates a Hold rating and has no price target on the stock.
Jefferies analyst Brent Thill reiterates a Buy rating and raises the price target from $360 to $385.
Morgan Stanley analyst Brian Nowak reiterates an Overweight rating and raises the price target from $345 to $375.
Wedbush analyst Ygal Arounian reiterates a Neutral rating and raises the price target from $340 to $350.
Advertising Growth: Advertising revenue per ad was up 30% year-over-year and 12% more ads were delivered versus last year’s first quarter.
“Facebook’s ad revenue is benefitting from a stronger than expected demand recovery,” KeyBanc's Patterson said.
Facebook’s advertising revenue was ahead of street expectations along with a 43% operating margin which Jeffries' Thill called a “rare combination.”
“Recovering ad demand will likely support further revenue growth acceleration in Q2 and a clear pathway to $15+ EPS by FY22,” Thill added.
Morgan Stanley's Nowak sees Facebook’s advertising revenue hitting accelerated growth in the rest of the fiscal year with consumer behavior and advertising sales moving more online.
“Ad strength was broad-based with e-commerce and SMB particularly strong,” Nowak said.
Quarter Highlights: Patterson highlighted the strength of the commerce segment in the first quarter with the marketplace reaching around one billion visitors and WhatsApp being used five million times for orders.
“Monetization of newer platforms is increasing,” Raymond James' Kessler said.
Strong sales of the Oculus Quest 2 were highlighted by several of the analysts in updated notes put out after earnings.
Needham's Martin highlighted the company’s WhatsApp monetization, click-to-message ads on Facebook Messenger, Facebook Marketplace and Facebook Watch as positives in the quarter.
The first-quarter results for Facebook’s engagement with Shops were a positive for Thill.
“We are particularly encouraged by the Shops monetization opportunity, as one of our recent experts noted that posts with instant checkout have 3x higher conversion rates than non-shoppable posts.”
Facebook’s commerce business is in the early stages and bears watching according to Wedbush's Arounian.
“While we don’t expect Facebook to begin generating revenue directly from its commerce offerings in the near-term, the engagement is a great channel to drive increased advertising demand,” Arounian said.
What’s Next: Facebook raised its expectations for expenses and lowered its CapEx guide. Kessler sees some potential upside for Facebook’s EBITDA.
“Overall strong ad demand FB measures should help mitigate potential headwinds,” Kessler said.
“Facebook will try to replicate TikTok and SNAP through building out the creative and monetization tools to support a user-generated content platform/ecosystem,” Martin said.
Margins for Facebook could fall in the future, Martin warned, with expenses ramping up in 2021 after pulling back on spending during the pandemic.
“Long-term normalized margins should be lower than 1Q21 reported margins,” she said.
A headwind of the iOS 14 privacy change was mentioned by several analysts as a negative that could hurt the company in the latter part of 2021.
“We were impressed to see FB guide for stable to modestly accelerating revenue growth in Q2,” Thill said given the iOS headwind.
The outlook for Facebook is bright with near-term and long-term drivers in place, added Nowak.
Nowak said Facebook's creator economy might be in the early stages — this feature would offer services to musicians, writers, artists, gamers, and others who want to monetize their large fan bases.
“Once again, engagement could lead to more monetization opportunities,” he added.
Caution comes from Arounian who maintains a Neutral rating.
“We remain balanced by the uncertainty around tighter privacy standards and engagement headwinds,” Arounian said.
FB Price Action: Shares of Facebook are up 7.30% to $329.51 on Thursday afternoon.
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