Attractive Setup For Facebook Inc (FB) Stock Into Q3 2017 Earnings

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Facebook Inc (FB) Q3 2017 earnings are set for release after closing bell on Wednesday, and analysts are predicting GAAP earnings of $1.27 per share on $9.85 billion in revenue. In last year’s third quarter, the social media firm reported $1.09 per share in earnings on $7 billion in revenue. Adjusted EBITDA consensus stands at $6.18 billion.

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Why Facebook Inc (FB) stock looks good going into earnings

Deutsche Bank analyst Lloyd Walmsley said in a note today that he continues to like Facebook Inc (FB) stock going into the third-quarter earnings release. In fact, he actually sees upward bias to both revenue and earnings estimates for both the third quarter “and beyond. He said budget spend for both core Facebook Inc (FB) and also Instagram are still growing, “largely unimpeded” by the slower growth in inventory on the core Facebook Inc (FB)  platform.

He expects a deceleration of 7 percentage points in ad revenue growth to 42%, although he believes Facebook Inc (FB) could slow less than expected because of the strong growth he is seeing in the company’s client budgets. He also cited better ad efficacy and ramping Instagram ad loads as reasons for his belief that the deceleration could be less.

He said his firm’s channel checks still show return on ad spend and plans to increase ad spend, which he expects to continue into next years. He notes that most are expecting Facebook Inc (FB) to guide for continued investments, but despite that he still expects a 40% increase in GAAP operating expenditures next year. That’s much higher than what he had been expecting for 2017 a year ago, so he said Wall Street should be better prepared for continued spending, which should be good for Facebook Inc (FB) stock.

He continues to rate Facebook Inc (FB) stock as a Buy with $220 price target.

What else to look for in Facebook Inc (FB) Q3 2017 earnings

RBC Capital Markets analyst Mark Mahaney said in his earnings preview note that he sees estimates for the Facebook Inc (FB) Q3 2017 earnings release as “reasonable, with upwards variance modestly more likely than downwards variance.”

He and his team published their AdAge Advertiser survey earlier this month, and they said that Google and Facebook Inc (FB) had the strongest results. RBC found that 26% of Facebook Inc (FB) advertisers spend more than 30% of their online ad budgets on the platform, which is an increase from past surveys. Mahaney also reports that advertisers continue to show increasing intent to spend more on the platform, and the return on investment remain consistently positive. Future spend intentions for Instagram were also positive, and this was the first time they were asked about the platform.

The RBC analyst estimates that Facebook monthly active user base grew 14% year over year during the third quarter, rising to 2.04 billion. He’s also expecting a sequential increase of 10 basis points in the daily to monthly active user ratio, bringing it to 66.1%. He’s projecting a 45% increase in ad revenue, a deceleration from 49% in the second quarter.

Going into the Facebook Q3 2017 earnings report, Mahaney continues to rate the company’s shares at Outperform with a $195 price target. Facebook Inc (FB) stock ticked slightly lower during regular trading hours on Tuesday, declining by as much as 0.21% to $179.50.

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