Overview:
The stock is trading up ~6.5% following last night's Q2earnings release that included stronger than expected top and bottom lineresults, with advertising revenue of $9.16B versus consensus of $9.02B.Management also revised the company's FY17 total GAAP expense growth toapproximately 40-45% vs prior 40-50% y/y.
Sentiment around the print has been decidedly positive, aswe note upward price target revisions in all notes surveyed (average increaseof ~12%). Analysts consistently highlighted the broad based strength of thequarter, with advertising demand, users and engagement all performing well.Advertising revenue growth of +49% (cc) was in particular focus, with analystsimpressed by pricing growth of +24% which was able to offset slower ad loadgrowth. Engagement metrics were also viewed favorably as MAU exceeded 2.0B andthe company experienced y/y growth for the sixth straight reporting period.Discussion around expenses also upbeat, total opex grew just 33% vs consensus42% and decelerated from 39% in Q1. While the company lowered its guidance forFY expense growth to ~40-45% from 40-50% previously, the first half cadenceimplies back half growth of 43-53% - management attributing the uptickprimarily to continued hiring and video content investments.
Thoughts around the stock remained largely upbeat, with mostsurveyed highlighting the company's position in a strong secular market, solidexecution and advertising strengths as reasons for remaining constructive.Overall sentiment on the stock remains bullish, as a quick look at sell-side sentimentshows 89% of firms keeping Buy-equivalent ratings compared to a 49% average forthe S&P 500; average price target of $184.37 represents a 4.5% premium tocurrent levels.
Analyst Commentary:
Notes pricing in the quarter increased 24% y/y versus 14% in1Q17 (and 3% in 4Q16), once again driven by the ongoing shift towards mobile,increasing adoption of video, as well as Instagram.
Raises GAAP EPS estimates by ~2% on average to reflectmargin outperformance and lower tax - notes Facebook effectively lowered itsguidance for expense growth (COGS + opex) to 40-45% from the previous range of40-50%, and noted that it saw a 6pp benefit to its tax rate from the impact ofits increased stock price.
Target to $205 from $180
Maintains a Buy rating
Believes FB continues to show a rare & impressivecombination of scale, growth, & profitability; highlights strong revenuegrowth, even as volume/price dynamics continued to move toward price.
Thinks video, AR, & other initiatives are likely to bemargin dilutive, but more importantly, they should be accretive to profits overtime.
Target to $210 from $182
Maintains an Overweight rating
Highlights outperformance was broad across geos, verticals,and ad-buying segments - while EPS of $1.32 was far ahead of RBC/Street at$1.16/$1.12, helped by lower tax.
Notes increased engagement – DAU/MAU ratio (engagement measure)at 66.1%, up 16 bps y/y, with rising engagement in every region.
Target to $195 from $185
Maintains an Outperform rating
Highlights strong ad revenue growth ex-FX of +49% y/y vs.DBe +45% y/y and consensus of +46% y/y with no signs of a meaningful slowdown -views the commentary around accelerating Messenger monetization as a majorpositive for sentiment and believes it is a potentially big long-term growthdriver.
Feels FB delivered a major 2Q, most likely giving investorseverything they could have asked for - highlights that the company beat onrevenue and costs; reduced guidance for opex and capex; noted potential forlower tax rates and struck an upbeat tone on video
Target to $215 from $189
Maintains a Buy rating
