Facebook’s earnings report last night was pleasing to Wall Street, so now we’re seeing a flood of price target increases. It seems most firms are upping their targets to the $120 to $130 range, with a few outliers going higher. Facebook shares also surged after last night’s report, climbing by as much as 4.95% to $109.10 per share during regular trading hours today.
Facebook’s execution “remarkable”
Facebook’s adjusted earnings were 57 cents per share, which beat the consensus by 5 cents, and revenue came in at $4.5 billion, which beat the consensus estimate of $4.37 billion. After adjusting for currency, the social network’s ad revenue increased 57% or 150 basis points quarter over quarter. Engagement reached a new high, and both mobile and desktop advertising numbers were better than expected. Ad revenue came in better than expected at $4.3 billion, compared to the $4.18 billion consensus.
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Macquarie Research analyst Ben Schachter called the social network’s execution “remarkable” and boosted his price target from $106 to $120 per share while reaffirming his Buy rating on the stock. He said the quarter marked the second in a row in which currency-adjusted revenue accelerated, and on the social network performed strongly across all geographies.
The good and the bad in Facebook’s report
Further, the analyst noted that Facebook’s core business are in “great shape” and that it keeps looking forward to more long term opportunities like messaging, virtual reality, search, video, and more. He believes many of these areas could potentially be as big or even bigger than the company’s core ad business, with video ramping quickly and now hitting 500 million users per day. Also management highlighted three drivers of monetization, which are demand among advertisers, engagement of users, and ad load.
He was a bit concerned that Facebook isn’t providing any guidance for 2016 operating expenditures until the fourth quarter earnings report. Operating expenditures increased 51% in the third quarter on a non-GAAP basis, and implied guidance suggests an increase of more than 40% for the fourth quarter, which was a little higher than Wall Street was expecting.
Also he said it appears as if shipments of the Oculus virtual reality headset are smaller than they expected, although investors might see this as a positive because the headset probably has a negative impact on margins. And finally, he said there is some uncertainty on timing, scale and required investments for the social network’s long term businesses.
Facebook’s ad innovations are working
Goldman Sachs analyst Heather Bellini upped her price target on Facebook from $110 to $125 per share. She thinks Instagram and Facebook’s other new ad formats like carousel ads and the proof of return on investment for advertisers are pushing the growth in ad revenue. She said the third quarter demonstrated strong momentum heading into the holiday shopping season and moving toward the global rollout of ads on Instagram.
Also video ads in general are exploding in popularity, as Facebook reported 8 billion daily video ads in the third quarter, compared to only 1 billion in last year’s September quarter. Jefferies analysts Brian Pitz and Brian Fitzgerald believe Facebook is well-positioned to take larger and larger portions of TV ad budgets as marketers prefer better targeted and data-driven video ad campaigns. Currently Facebook doesn’t even take 5% of marketers’ total ad budgets. They estimate the U.S. online video opportunity at about $17 billion by 2017.
The Jefferies team upped their price target slightly from $130 to $135 per share.
Other price target increases
Goldman Sachs analyst Ross Sandler also joined in on the party and upped his price target for Facebook from $115 to $125 per share. Also Credit Suisse analyst Stephen Ju raised his target from $115 to $135 per share, and Bank of America Merrill Lynch analysts maintained their Buy rating and $115 per share price target. Barclays analyst Paul Vogel maintained his Overweight rating and raised his target from $105 to $140 per share.
JPMorgan analysts raised their target for Facebook from $118 to $125, while Susquehanna’s target moves from $125 to $130 and Stifel Nicolaus’s target is upped from $108 to $120 per share. Wells Fargo analysts bumped up their target price range from between $115 and $120 to between $135 and $140 per share. Pacific Crest analysts Evan Wilson and Tyler Parker maintained their Sector Weight rating and do not have a price target on the social network.