Breakout

Facebook: It’s All About Growth & Mobile for Bullish Analysts

It’s all about revenue growth and mobile advertising for Facebook (FB), which according to consensus estimates, is expected to post 37% year-over-year sales growth for the second-quarter.

“When we think about a growth company, it seems to us like a lot of people don’t think Facebook is as ‘growthy’ as maybe it really is,” says Scott Kessler, head of technology research at S&P Capital IQ, in the attached video. “We’ve seen accelerating growth, we expect that to continue, and so it’s really important to focus on what they actually deliver.”

Analysts are expecting the social network to report a Q2 profit of $0.14 a share on revenues of $1.62 billion. Factset shows that among the 37 analysts covering the stock, 72% rate it a buy or overweight, 28% rate it a hold, with no sell or underweight ratings. The average price target is $32.75.

That’s not too bad for the company everyone loved to hate after its botched IPO in May 2012. Remember, shares debuted at $38 a piece. At that time, 53% of analysts had buy ratings, 27% hold, and 20% sell.

In the last year, the valuation has come down and sales have gone up. They acquired Instagram, attempted to dip into the smartphone market, and aggressively tested new ad strategies.

“I think the company should really be commended for the fact that a little more than a year ago they had zero revenues from mobile and now they are at a run rate of $1.5 billion a year,” says Kessler, who has a buy rating and $33 price target on FB.


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What’s key to his bullish thesis is accelerated revenues coming from mobile advertising. He doesn’t necessarily need to see blowout numbers, but a continued positive trend will strengthen the company’s growth profile.

For the first-quarter, mobile ads contributed to 30% of overall ad sales and had a daily average run rate of $4.15 million. Kessler says there’s no hard line in the sand on this metric, but Wall Street is targeting of print of 33% for Q2.

“We think that they figured a lot of it out,” he says of mobile advertising. “Now if they can start figuring out how to broaden out with respect to mobile advertising, whether you’re talking about more different kinds of formats, different platforms, International; those are opportunities that we see and hope they address to some extent on the Q2 call.”

Facebook (FB) reports second-quarter earnings today after the market close.

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