- Facebook reported its third-quarter earnings on Wednesday, blowing past analysts’ expectations. It warned that it planned to invest heavily in security, cutting into profits – but analysts aren’t worried by the news. Across the board, analysts are upping their price target for the stock and urging clients to invest.
Facebook on Wednesday announced its earnings for the third quarter of 2017 – and it crushed it.
It blew past analysts’ expectations, hitting $10 billion, or £7.5 billion, in quarterly revenue for the first time (versus an expected $9.84 billion), while its earnings came in at $1.59 a share ($1.28 expected).
But these results were tempered with a warning: Facebook says it plans to invest enough in security in the coming months to hurt the company’s bottom line. “I am dead serious about this,” CEO Mark Zuckerberg said on the earnings call.
After reaching all-time highs earlier in the day, the social network’s stock dropped 2% in after-hours trading on the news – but analysts aren’t worried.
In research notes to clients, analysts from investment banks and financial firms across the board are painting a rosy picture of Facebook’s future, often upping their price targets for the stock and urging people to invest.
“Security and investment will get the headlines, but what matters more is the video strategy,” Macquarie wrote. “If it works, we see continued upside for FB.”
Baird shrugged off the additional investment as “prudent steps,” while Jeffries agreed: “Conservative guide doesn’t phase us. One of our top [large chip] picks.”
Only one of the analysts’ notes Business Insider reviewed actually lowered its price target. That was Credit Suisse, which modestly reduced it from the already-very-bullish $235 (£177) to $230 (£173). Facebook’s stock currently sits at about $182, while the majority of analysts’ targets are about $200 to $210.
In short, while Facebook been in the firing line recently over how Russian operatives exploited the platform to spread misinformation and propaganda to more than 120 million Americans, investors and analysts aren’t worried.
Citi said that while Facebook management could “be criticized for not being proactive enough, we view its current handling of the Russia-related issues as responsible and immaterial to the financial outlook.”
Keep reading to see a complete roundup of analysts’ reactions to Facebook’s Q3 earnings, but first, here are the key numbers:
- Revenue: $10.33 billion (£7.8 billion) versus $9.84 billion (£7.4 billion) expected, up 47% from the year-ago period. Earnings per share (GAAP): $1.59 (£1.20) versus $1.28 (£0.97) expected, up 77% from the year-ago period. Monthly active users: 2.07 billion, up from 2.01 billion last quarter. Daily active users: 1.37 billion, up from 1.32 billion last quarter.
Credit Suisse: BULLISH
Price target: $230 (previously $235)
Comment: “Our investment thesis remains unchanged: 1) Facebook will be able to drive long term revenue growth without a material lift in ad loads, 2) Street models continue to underestimate the long-term monetization potential of upcoming new products (Graph Search), 3) optionality/upward bias to estimates from multiple other products including Messenger and WhatsApp.”
Price target: $225 (previously $215)
Comment: “FB is growing nearly 2x the rate of its large cap internet peers while delivering 50%+ operating margins and the stock is up nearly 59% YTD. FB remains our top large cap internet pick and we think that momentum in the name can continue through the end of the year. We see upside to ARPU, MAUs, and Instagram and continue to watch potential margin compression, testing on Video, and investment in security.”
SunTrust Robinson Humphrey: BULLISH
Price target: $210
Comment: “These results show market share gains not only from traditional Media companies, but from digital platforms as well; and as we’ve been suggesting, value and market share gains within IDM continue to accrue to the largest players.”
Price target: $210 (previously $200)
Comment: “While mgmt continues to temper expectations, fundamentals remain quite strong and we not only see multiple levers of new growth but also see mgmt’s 2018 opex growth guidance as unobtainable. Moreover, while mgmt can be criticized for not being proactive enough, we view its current handling of the Russia-related issues as responsible and immaterial to the financial outlook. All told, we are raising our revenue forecasts but lowering near-term margins and EPS to reflect mgmt’s 2018 opex guide.”
Price target: $205 (previously $190)
Comment:The bottom line is that despite large expected investments in ’18, we are raising numbers. FB’s unique offerings for advertisers are resonating andas long as users are there, advertisers will follow. While the discussion around security and increased spend will generate a ton of media, the real issue for the model is if the video strategy will succeed. If it does, and FB is able to build a legitimate YouTube challenger, the increased security spend will be a speed bump.”
Price target: $200 (previously $195)
Comment: “Mgmt clearly indicated it is electing to assume responsibility for content on its platform, leading to investments in “safety and security,” and will increasingly pay for content (initially via licensing and increasingly via a rev share with content creators). Separately, the company’s investments in 10-year technology (AI, AR/VR, etc.) are driving continued OPEX and expansion of owned datacenters is driving a step function higher CAPEX in 2018. We believe this will spark the question of whether Facebook has been over- earning, but the company is ultimately guiding for investment growth it cannot reach.”
Morgan Stanley: BULLISH
Price target: $200 (up from $195)
Comment: “More impressive, FB is delivering this cash flow even while aggressively investing in headcount, ad measurement/improvement, augmented reality, virtual reality, video content, Instagram, Messenger, Whatsapp, Aquila, among other items. We believe this ability to continue to invest in new initiatives will widen FB’s competitive lead vs. other platforms…and over time will likely lead to sustained stronger cash flow growth.”
Price target: $200 (previously $185)
Comment: “With supply/demand dynamics driving higher pricing, concerns over ad load headwinds should subside, with investor focus shifting to the significant security/content investment ramp in CY18 (modeling expense growth +50% Y/Y), which we view as prudent steps aimed at preserving platform integrity in the minds of users(and regulators).”
William Blair: BULLISH
Price target: n/a
Comment: “Over the next 12 months, we believe there is 15%-plus upside to shares based on EBITDA growth. We maintain our Outperform rating.”