Facebook Inc (FB) – Buy The Stock: Topeka

Facebook Inc (FB) – Buy The Stock: Topeka

Topeka analyst Victor Anthony continue to recommend investors actively buy Facebook Inc (NASDAQ:FB) shares, the recommendation came after the company reported solid 4Q results on Wednesday. Below is Topeka’s full report:

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Facebook Inc (NASDAQ:FB)’s revenues and Adj. EPS handily beat the TCM and consensus expectations on better than expected advertising revenue growth, which accelerated by approximately 11pts, driven by better pricing, which increased 92% YoY. Mobile advertising revenues increased to 53% of total advertising revenues and exceeded $1B for the first time, while desktop advertising revenues grew for the first time in several quarters. In addition, monthly and daily engagement continue to inch up. These are all very positive trends. Facebook’s performance validates our checks that advertiser demand increased significantly in the quarter. Looking out two years, Facebook’s ad product cycle (video ads, Instagram ads) should lead to above consensus results. Increased mobile monetization and increased adoption of existing ad units such as FBX, Custom Audiences, and App Installs should also contribute to upside.

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Facebook 4Q’s Key Points

4Q13 Headline Results. Reported revenues of $2.585B, up 63% YoY, were 10-11% above the TCM/Consensus revenue estimates of $2.356B/$2.336B. Adj. EPS of $0.31, was 4c/5c above the TCM/Consensus of $0.27/$0.26. Non-GAAP operating margin of 56% was ahead than our 49.7% estimate.

Accelerating Advertising Growth. Reported ad revenues of $2.34B, up 76% YoY (+65.6% YoY in 3Q13), was 10% above the TCM/consensus estimate of $2.1B. Advertising ARPU increased 50.6% YoY, a meaningful acceleration from 38.6% YoY in 3Q13. Pricing growth was 92% compared to our 49.2% est., and +42% in 3Q13, and add impression growth declined by 8% compared to our 7.4% growth estimate est., and +16% in 3Q13. Mobile revenues were $1.24B, +40.8% QoQ compared to our $1.12B est. and represented 53% of advertising revenues. Desktop advertising revenues were $1.1B, +7.5% YoY, compared to our $1.0B est, reversing revenue declines from the past several quarters. All key segments (direct response, SMBs, developers, and brand marketers) contributed to the advertising revenue strength.

Payments. Reported revenues of $241mm, were ahead of our estimate of $226mm.

Engagement Increased. MAUs were 1.23B, with 41mm users added, up from 34mm added in 4Q. DAUs were 757mm, for a DAU/MAU ratio of 61.5%, up from 61.2% in 3Q13. Monthly mobile DAUs grew to 556mm from 507mm in 3Q13, and mobile DAUs grew to 945mm from 874mm in 3Q13, for a mobile DAU/MAU ratio of 58.8%, up from 58.0% in 3Q13.

Balance Sheet / Free Cash Flow. Facebook Inc (NASDAQ:FB) generated $748mm in FCF ending the quarter with $11.45B in cash on the balance sheet, including $1.5B in from the secondary.

Ok With Expense Guidance / Nothing New On Teens / Instagram User Base Doubled. FB guided to Non-GAAP expense growth of 40%-45% and capex of $2.0-$2.5B. The expense growth was slightly above our estimate and the capex guidance was within our expectations so we are comfortable with the guidance. Nothing new to report on teens. Graph search will be launched on mobile soon and investment there is over 3-5yrs. Instagram doubled its user based in 2013. Facebook Inc (NASDAQ:FB) now has 25mm businesses with Facebook pages.

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