Facebook Inc (NASDAQ:FB) stock finally hit a ceiling this morning after investors pushed it to a new high last night in extended trading. The social media company stood up to the difficult comparisons it was up against and still topped Wall Street’s estimates. Needless to say, analysts from virtually every Wall Street firm boosted their price target on Facebook Inc (NASDAQ:FB) stock, although not everyone is happy with all of it.
The company reported $8.8 billion in revenue and non-GAAP earnings of $1.41 per share, compared to the consensus estimates of $8.5 billion and $1.31 per share.
ValueWalk's Raul Panganiban interviews Joseph Cioffi, Author of Credit Chronometer and Partner at Davis + Gilbert where he is Chair of the Insolvency, Creditor’s Rights & Financial Products Practice Group. In the interview, we discuss the findings of the 3rd Annual report. Q2 2021 hedge fund letters, conferences and more The following is a computer Read More
Facebook stock downgraded by Pivotal
If you can believe it, one analyst made a huge contrarian call after last night’s earnings report by downgrading Facebook Inc (NASDAQ:FB) stock. Brian Wieser of Pivotal Research cut his rating to Hold because he expects the higher expenses this year to weigh on the company’s valuation. The social media company guided for expense growth that was bigger than expected, so he slashed his price target for Facebook Inc (NASDAQ:FB) stock from $147 to $135.
However, Credit Suisse analyst Stephen Ju defended the high expenses for this year in his note, saying that it’s only nature for them to grow because the company’s revenue will grow too. He boosted his price target for Facebook Inc (NASDAQ:FB) stock from $165 to $170 per share and said he expects investors to focus on the higher-than-expected expense guidance.
Higher expenditures to come with higher revenue
The company expects GAAP operating expenditures to grow by 40% to 50% and non-GAAP expenditures to rise by 47% to 57% for this year Ju believes the delta is because of planned investments in video and research and development for Oculus. He points out that both of these areas will come with revenue generation, so he feels there is still upward bias to estimates. He remains a buyer of Facebook Inc (NASDAQ:FB) stock as he still expects long-term revenue growth without any “material” increase in ad load. The main drivers for now, he says, are Instagram, Premium Video and Dynamic Product Ads.
Indeed, investors shouldn’t be too surprised about the higher operating expenditures this year, as even before last night’s report, we saw that the company had posted quite a lot of job listings—more than it has been recently. Chief Financial Officer David Wehner reminded investors that they will ramp hiring this year, and thus, expenditures will rise.
Video is a “mega trend”: Zuckerberg
Facebook Inc (NASDAQ:FB) management did offer commentary on video last night, reiterating their “video first” strategy, supporting Credit Suisse’s view. CEO Mark Zuckerberg called video a “mega trend” on the earnings call last night and feels that the new video tab will help users discover and watch more videos. Among the video investments we’ve been hearing about is a video app for set-top boxes, although the company hasn’t talked about this.
For now anyway, it is focused on shorter clips like those found on YouTube rather than longer ones such as those on Netflix. In order to build its video ecosystem, it plans to pay for “seed content” like what it did in the earliest days of Facebook Inc (NASDAQ:FB) Live.
Has Facebook stock hit a ceiling?
Pivotal isn’t the only firm to turn bearish on Facebook Inc (NASDAQ:FB) stock following last night’s new high. Global Equities Research analyst Trip Chowdhry feels that the shares have hit a ceiling and now is encouraging profit-taking. He has an ultra-bearish price target of $115 on Facebook Inc (NASDAQ:FB) stock, but his bearish view isn’t related to operating expenditures.
He fells that “novelty” is being replaced by “fatigue” and that Facebook Inc (NASDAQ:FB) stock is going to bust after the long boom. Unlike many other analysts, he doesn’t see social media as a winner-take-all scenario, as users have more than 20 different apps to choose from for social media. Further, ad budgets are being spread across more and more platforms, so it may only be a matter of time before the social media giant will have to share.
Facebook should acquire Spotify or Activision Blizzard: analyst
Although he seems to like Facebook Inc (NASDAQ:FB) stock, analyst Richard Kramer told CNBC‘s Worldwide Exchange today that the company needs to do more than just video. He suggested that it use its $30 billion in cash for a major acquisition such as streaming music platform Spotify or game maker Activision Blizzard. He called gaming and music “the big buckets of time spent.”
Kramer feels that video is just one part of what Facebook Inc (NASDAQ:FB) is doing and, like Chowdhry, noted that competition in the social media space, especially video is growing. He also feels that spending $7 billion on capital expenditures just to build out its video offerings might not be the best idea because in videos, the company is facing off not only with traditional content producers and TV networks but also with Netflix, Amazon and maybe Apple someday.
Other price target increases for Facebook stock
In case you’re keeping score, here’s a rundown of the other price target increases that we know about for Facebook Inc (NASDAQ:FB) stock:
- SunTrust boosted from $142 to $155
- RBC Capital Markets raised from $170 to $175
- Susquehanna increased from $160 to $180
- Pacific Crest raised to $150 to $155
- Wedbush increased from $162 to $175
- JPMorgan boosted from $165 to $170
- Morgan Stanley raised to $165
- Stifel boosted from $155 to $165
- Raymond James raised from $160 to $180
Facebook Inc (NASDAQ:FB) stock edged downward by as much as 0.27% to $132.87 after touching a record high of $135.49.