2 Big Things to Watch With Facebook Stock (FB)

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The earnings parade was in full swing this week, with all eyes on Facebook (FB) as the tech giant reported quarterly numbers on Wednesday. A quick recap of the numbers FB stock investors were busy sizing up:

  • Facebook stock fbRevenue improved by almost 50% to $3.85 billion, beating expectations of $3.77 billion.
  • The bottom line was a solid 54 cents per share of adjusted earnings, handily besting last year’s figure of 32 cents per share and analysts’ hopes of 49 cents per share of Facebook stock .

Right after the report, Facebook stock investors weren’t all that impressed. Shares of FB didn’t pop on the earnings beat, with InvestorPlace expert Tom Taulli pointing to rising costs as the main dark spot in the release.

Once they were given time to digest things, though, Facebook stock investors were feeling a little more bullish. Shares of FB overcame that after-market selling, thanks in part to some optimism from analysts at JMP Securities. The analysts raised their price target for Facebook stock from $85 to $94, pointing to video ads as the main reason to be a fan of the social media site.

Here’s the JMP perspective straight from the horse’s mouth:

“In our view, a key takeaway from the quarter is that Facebook users now consume 3+ billion video views per day and we believe there is more than sufficient video consumption for Facebook to ramp its auto-play video ads throughout 2015 without impact to the user experience.”

Analysts at Bernstein Research echoed this optimism as well … but only in the short term. They were also impressed by the growth of video ads, on top of increasingly customized ad targeting. Toss in the strong growth of Instagram (and its ad momentum) and you have the basis for Facebook’s just-reported impressive quarter. They wrote:

“This trajectory is a consequence of the faster adoption of some of Facebook’s more sophisticated and effective ad formats and targeting products in North America, e.g., custom audiences, and possibly the early ramp-up of Instagram.”

But that’s where the good news ends, from Bernstein’s perspective. While current impressive trajectory is impressive, Bernstein analysts worry that Facebook stock simply won’t be able to keep it up. They wrote:

“We believe video ads on Facebook will be a large and substantial business. But we think consensus is overestimating the early ramp-up of the associated revenues. Our view on Instagram is quite similar: it will be an extremely important, large and valuable asset, but the ramp up will be slower than expected.”

What does that actually mean for shares of FB stock? Well, from a price-tag perspective, Bernstein wasn’t nearly as optimistic as the folks at JMP, slapping shares with an $84 destination — a shrugworthy 7% increase from current levels.

The bottom line? Video ads and Instagram are the features to watch when it comes to the future of Facebook stock. The growth is what’s propelling current earnings success … and continued growth is what’s required for the FB stock to keep charging forward.

As of this writing, Robert Martin was long FB. 

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Article printed from InvestorPlace Media, https://investorplace.com/2015/01/fb-facebook-stock-2/.

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