Facebook Inc (FB) Stock Erases Some Post-Earnings Gains

Updated on

Facebook Inc (NASDAQ:FB) stock surged to a new record high of $128.33 following last night’s earnings report before reversing course as Thursday’s regular trading hours wore on. However, the shares were still tracking to end the day in the green. The social network has earned a slew of price target increases since wowing Wall Street last night. The social network reported $6.4 billion in revenue, beating consensus of $6 billion, and adjusted earnings of 97 cents per share, which was well ahead of the consensus of 82 cents.

Wedbush moves to $162 on Facebook stock

Wedbush analyst Michael Pachter raised his price target on Facebook Inc (NASDAQ:FB) stock from $145 to $162 per share and reiterated his Outperform rating. He noted that Facebook Inc (NASDAQ:FB) remains focused on mobile for long-term growth and innovation. He believes the social network is nearing full penetration in North America and Europe but expects continued momentum in Asia and the rest of the world. He actually believes ad load, usage and ad rates could expand for a number of years around the globe and expects underpenetrated parts of the world to outperform.

The analyst also sees growth ahead for the company’s other platforms, noting that Facebook Inc (NASDAQ:FB) has only begun to monetize Instagram and its 500 million monthly active users. He expects average revenue per user to hit the global average over the next two years and add between $4 billion and $5 billion to the company’s global revenue growth in that timeframe. He adds that WhatsApp and Messenger will probably monetize “later and more slowly” but believes that they could add more than $3 billion to Facebook Inc (NASDAQ:FB)’s revenue growth in the next couple of years.

Engagement, advertiser demand still strong on Facebook

Bank of America Merrill Lynch analyst Justin Post raised his price objective for Facebook Inc (NASDAQ:FB) from $145 to $150 and reiterated his Buy rating. He said the growing engagement on Facebook Inc (NASDAQ:FB) helped offset the concerns he has had recently as the social network saw a 17% increase in daily users. Additionally, the daily to monthly active user ratio remained stable at 66%, and time spent per user increased by more than 10%, all of which are important positives in light of recent concerns about competition.

Macquarie analyst Ben Schachter didn’t change his price target on Facebook Inc (NASDAQ:FB) stock, but he pointed out that advertiser demand remained strong during the quarter as revenue growth beat expectations. He said ad pricing, impressions, improved analytics, and better targeting and ad formats all drove demand among advertisers, which in turn drove higher-than-expected revenue. He expects ad load to slow but innovation to continue as the social network continues to develop new revenue drivers.

Concerned about Facebook’s capex

UBS analyst Eric Sheridan bumped up his price target for Facebook Inc (NASDAQ:FB) stock from $150 to $155 but actually had concerns about the company’s capital expenditures. Management guided for about $4.5 billion in full-year capex, which places the actual result at the high end of their previously provided range. He also wanted to hear more clarity on the status of the Class C shares Facebook Inc (NASDAQ:FB) aims to establish in a plan that has received quite a bit of criticism and resistance by some shareholders.

Additionally, Sheridan was concerned about the lack of upside in Payments revenue, as it declined 8% year over year even though the second quarter was the first following the launch of the Oculus VR headset.

Piper Jaffray analyst Gene Munster (who upped his target on Facebook Inc (NASDAQ:FB) stock from $170 to $185 per share) also mentioned the Oculus headset. Although the company didn’t say how many headsets it shipped during the second quarter, Munster believes it shipped between 30,000 and 50,000 units at an average selling price around $599, based on the $16 million increase in Other revenue. He notes that Other revenue had been flat to falling sequentially over the last four quarters on the back of declining gaming revenue.

Video highlighted in Facebook’s results

CLSA analyst James Lee raised his target on Facebook Inc (NASDAQ:FB) stock from $161 to $180 per share and highlighted video and the mix shift toward brands as a driver for ad load. He’s not concerned about the latter, however, although apparently some are. In fact, he expects the mix shift toward brands to continue, driven by new products like Facebook Inc (NASDAQ:FB) 360, Video Carousels, and Canvas. He’s looking toward a positive seasonal impact for the fourth quarter based on this shift.

He sees Instagram as being even better positioned than the core Facebook Inc (NASDAQ:FB) platform from band advertising spend, especially as major ad agencies report positive data. Lee emphasized that brand advertisers are buying based on reach at first, which is why he’s not worried about the shift toward brand advertising as being a driver of higher ad load, which management warned will likely slow starting in the second half of next year. The CLSA analyst expects pricing to shift toward being the main driver of revenue growth for Facebook Inc (NASDAQ:FB) as advertisers begin to see more “sophisticated leveraging advanced targeting and ad sequencing.”

Other price target increases for Facebook stock

Other firms also adjusted their price targets for Facebook Inc (NASDAQ:FB) stock. JMP moved from $147 to $165 per share on Facebook Inc (NASDAQ:FB) stock, while Wells Fargo bumped up their valuation range from $145 to $150 per share to $155 to $160. Also Canaccord Genuity analysts moved their target from $150 to $160 per share, while Goldman Sachs analysts bumped up their target by $20 to $162 per share. Stifel analysts raised their target from $145 to $155, while Raymond James moved from $140 to $155 on Facebook Inc (NASDAQ:FB) stock.

The shares were up 1.71% at $125.45 about 20 minutes before closing bell on Thursday.

Leave a Comment