Relieved analysts praise Facebook's bang-up results, raise price targets
- Wall Street analysts cheered growth in Instagram advertisement sales and dismissed management's "boilerplate" conservative tone.
- They highlighted accelerating ad revenue growth at Instagram and looked past the company's $5 billion FTC charge as a one-time hit.
- Of the eight brokerage notes compiled by CNBC, seven raised their price targets and advised clients to expect better returns from Facebook shares.
Brokerages were unanimous in their praise of Facebook on Thursday morning, a day after the social media company reported second-quarter profit nearly 6% above estimates despite increased regulatory scrutiny.
Filled with jargon and perversions of Simon & Garfunkel lyrics, Wall Street's analysis of Facebook's earnings included phrases like "compounding engagement," "great momentum" and "Hello Acceleration, My Old Friend" as analysts cheered growth in Instagram advertisement sales and dismissed management's "boilerplate" conservative tone.
Of the eight brokerage notes compiled and analyzed by CNBC, seven raised their price targets and advised clients to expect better returns from Facebook shares over the next several months. The stock closed at $204.66 on Wednesday but was down 2.6% Thursday morning.
J.P. Morgan, Morgan Stanley, Bank of America, Jefferies, Deutsche Bank, Evercore ISI and Mizuho hiked forecasts, while lone hold-out Barclays left its projection unchanged at $240, which already implies 17% upside from Wednesday's close.
Of the many line items lauded, analysts tended to highlight accelerating ad revenue growth thanks to increased use of Instagram's stories feature and an upswing in impressions. The analysts also were keen to look past the company's $5 billion FTC charge as a one-time hit that would do little to derail the larger growth trend, but noted that persistent regulation could pose more of a problem.
Analysts also brushed aside caution from Facebook Chief Financial Officer David Wehner that tougher comparisons could result in revenue growth deceleration in upcoming quarters.
"Other than the $5bn fine, the FTC settlement requires no change in FB's current operations other than stringent oversight of existing privacy guidelines," Evercore ISI wrote. "Given the revenue acceleration and margin beat, our 2020 revenue and EPS estimates move higher by 3% and 2%, respectively, and our Target Price goes up to $230."
Here's what some of Wall Street's top Facebook analysts thought of its earnings report:
J.P. Morgan (Overweight; $255 target)
"2Q was another fundamentally strong quarter w/FB showing revenue acceleration & consistent operational execution despite increasing regulatory pressure, including confirmation that the FTC launched an antitrust investigation of FB in June. We continue to believe that FB can deliver 20's% revenue growth in 2020 w/moderating expense growth, driving strong reacceleration in earnings growth next year—we model ~25% growth ex-accrual."
Morgan Stanley (Overweight; $235 target)
"FB's solid quarter (revenue, EPS, FCF beats) speaks to its continued ability to drive engagement and monetization. We also see 5 key revenue drivers (commerce, Explore, product sponsorship, payments/messaging, and video) to extend its growth runway. Raise PT to $235 and remain OW."
Jefferies (Buy; $250 target)
"FB had another solid quarter with a 2.5% rev beat and an $0.11 ex-charge EPS beat. Mgmt guided again to constant currency "revenue growth deceleration" in 2H19/1H20, but considering recent improvements to Core Facebook and momentum around Commerce and Stories, we believe investors will question the magnitude of the decel. With Opex growth outlook unchanged for the full year, we continue to believe in $10 EPS on the horizon."
Evercore ISI (Outperform; $230 target)
"Facebook 2Q results were characterized by impressive acceleration at scale (FXN revenue growth rates improved 150bps QoQ to 31.7%), and marked the first time revenue accelerated in three years, with Stories in particular driving an uptick in impression growth. ... Given the revenue acceleration and margin beat, our 2020 revenue and EPS estimates move higher by 3% and 2%, respectively, and our Target Price goes up to $230, as we reiterate our Outperform rating."
Barclays (Overweight; $240 target)
"FB reported revenue 2% and recurring OI 6% above consensus, and provided the boilerplate outlook calling for deceleration. FB is the only company worldwide generating $70b+ in annual revenue, growing north of 30% and accelerating, that also trades at sub-20x EPS. Every print since mid-2018 has increased our confidence, yet many folks in the investment community remain skeptical."
Bank of America (Buy; $240 target)
"While more cautious 2H revenue growth commentary could take away some of the AH trading momentum, with FB beating its 2Q revenue outlook & Europe accelerating, we see 4Q commentary as having usual conservatism. We remain optimistic on stories ramp, messaging & video monetization, Instagram and WhatsApp ecommerce to aid revenue growth and offset privacy headwinds."
Deutsche Bank (Buy; $235 target)
"We come away with increased confidence in the medium-term revenue outlook on the back of re-accelerating growth, two quarters ahead of where we had forecast a re-acceleration. Deceleration in the outlook is largely conservative in our view, though we continue to model further deceleration, with 2019 growing 29% ex-FX (from 28% previously) and 2020 at 22% (from 21% previously)."
Mizuho (Buy; $247 target)
"FB reported strong 32% YoY ad revenue FXN growth, accelerating 120bps from last quarter. Revenue growth is guided to decelerate for the rest of the year, consistent with consensus but conservative in our view. Although the $5bn settlement with the FTC was positive, regulatory overhang will likely remain due to anti-trust inquiries from the FTC and DoJ. We are raising our 2021 EBITDA estimate by 3% to $57bn (we are already 7% ahead of consensus)."