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Investors Give Facebook's Quarter A Thumbs Up; What Does The Street Think?

Jayson Derrick

Facebook, Inc. (NASDAQ: FB) reported first-quarter results highlighted by better than expected daily active users (DAUs), monthly active users (MAUs) and average revenue per user (ARPU) metrics. Here is a summary of how some of the Street's top analysts reacted to the print.

The Analysts

  • Bank of America's Justin Post maintains a Buy rating on Facebook's stock with a price target lifted from $187 to $224.
  • Raymond James' Aaron Kessler maintains at Outperform, price target lifted from $200 to $225.
  • Morgan Stanley's Brian Nowak maintains at Overweight, price target lifted from $195 to $210.
  • Canaccord Genuity's Maria Ripps maintains at Buy, price target lifted from $200 to $225.
  • KeyBanc Capital Markets' Andy Hargreaves maintains at Overweight, price target lifted from $195 to $220.
  • UBS' Eric Sheridan upgrades from Neutral to Buy, price target lifted from $170 to $240.

Facebook's stock traded higher by more than 6.7 percent to $194.96 per share.

BofA: 'Solid' Quarter

Facebook reported an overall "solid" quarter with revenue decelerating less than expected and posting a slight beat at $15.1 billion versus $15.0 billion, Post said in a research report. Expense growth of 34 percent also slowed down more than expected (excluding a $3-billion FTC accrual), which suggests a "very discretionary" expense base and potentially conservative guidance for 2019.

North America MAUs rose 1 million from last quarter to 243 million and MAUs in Europe rose 3 million from last quarter. Trends in Europe improved despite a negative UK report that labeled the company a "digital gangster."

Total ARPU rose 16 percent from last year to $6.42 versus expectations of $6.29 while North American ARPU rose 28 percent.

See Also: Facebook Earns An Upgrade On Q1 DAU Growth

Raymond James: Positive Takeaways

Facebook's earnings includes four notable takeaways that justifies a more bullish stance on the stock, Kessler said in a research report.

  1. Ad revenue was strong across all regions and was broad-based across geographical regions and platforms;
  2. DAUs rose 7.8 percent from last year to 1.56 billion with strength seen across Asia;
  3. Operating income benefited from lower than expected cost of revenues and lower S&M and R&D expenses; and
  4. Management revised its 2019 expense guidance growth lower from 40-50 percent to 37-45 percent and lowered its CapEx guidance from $18-$20 billion to $17-$19 billion.

Morgan Stanley: Stories Monetization

Facebook said its users combined for more than 500 million stories across each of its core Facebook and Messenger platforms in the first quarter, which is up from 300 million as of September 2018.

Nowak said stories were one of the notable drivers of Facebook's platform-wide 32 percent ad impression growth. In addition, ad dollars continue flocking towards stories given Facebook's superior reach, a trove of data and low pricing.

Ads on stories are likely 20-50 percent cheaper than those on the News Feed. This implies the potential for a "double-barreled benefit" to ad revenue growth over time if Facebook improves its ad efficacy.

Canaccord: Advertising Outperformance

One of the key themes of Facebook's report is the continued advertising outperformance, Ripps said. Specifically, advertising revenue growth of 26 percent beat expectations while ARPU growth in the U.S. and Canada rose by a "robust" 30 percent.

View more earnings on FB

Management said ad revenue growth will decelerate throughout 2019, but overall the company guided towards higher full-year profitability.

The company's long-term growth outlook remains encouraging with new features like "Checkout on Instagram," which remains in beta testing with more than 20 brands.

KeyBanc: 'Exceptionally Strong' Demand

Facebook's political-related risks remain a factor but the company's report shows consumer demand remains "exceptionally strong." Hargreaves said the earnings report also offers a "foundation for excellent growth" over the longer term. Margin and free cash flow growth are likely to be seen beyond 2019 from "excellent opportunities" in monetization initiatives.

The research firm increased its 2019 revenue estimate from $67 billion to $69 billion, while 2020 revenue estimates were also lifted from $78.3 billion to $81.1 billion.

UBS: Time To Come Off The Sidelines

Sheridan said Facebook's quarter marks a continuation of outperformance versus expectations from a combination of user, engagement and revenue growth. Instagram is now a large scaled digital platform that can sustain current growth and operating leverage for the coming years. This bodes well for the continued "blurring of the lines" between e-commerce and advertising.

Sheirdan said Facebook's privacy concerns and politically related risks remain a factor moving forward but investors better understand the risks.

Related Link: Facebook's Product And WhatsApp Chiefs Are Leaving, Analysts Say It's Consistent With Transition Towards Privacy

Munster: Weathering The Storm

It's apparent the "#DeleteFacebook movement" and corresponding outcries came from a "vocal minority" of people, Gene Munster said in a blog post. The majority of people simply "don't care enough" about privacy scandals as they risk "feeling out of the loop."

Meanwhile, News Feed and Instagram remain at or near capacity for ad loads with notable strength in Instagram stories, the analyst-turned-venture capitalist said. In fact, Facebook can command a higher price for stories ads as new advertisers maximize how to best use the new tool.

Facebook managed to not only weather the "storm" of bad publicity but is able to communicate a vision for the future, according to Munster. Specifically, Facebook CEO Mark Zuckerberg said he wants the platform to be more of a "living room" platform which represents a "bigger opportunity" compared to the "town hall" community which exists today.

Latest Ratings for FB

Date Firm Action From To
Apr 2019 Maintains Outperform Outperform
Apr 2019 Maintains Market Outperform Market Outperform
Apr 2019 Maintains Buy Buy

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