Facebook Inc (FB) Stock Should Hit $180 After Q2 Earnings

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It seems only Wall Street’s high expectations can stop Facebook Inc (NASDAQ:FB) stock from climbing even higher. FB stock hit all-time highs last week and shareholders are feeling more confident about what the social media giant will reveal when it reports second-quarter fiscal 2017 earnings results after the closing bell Wednesday.

Facebook Inc (FB) Stock Could Hit $180 After Q2 Earnings

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FB stock has skyrocketed 43% year-to-date, while among its FANG peers Amazon.com, Inc. (NASDAQ:AMZN) is up 37% and Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) has added 22%. Only Netflix, Inc. (NASDAQ:NFLX), up 53% on better-than-expected Q2 results, has bested Facebook.

But with better-than-expected results in hand from rival Alphabet, which cited strong advertising growth, it’s no longer a question of whether FB will beat its own Q2 results Wednesday, but by how much.

To that end, while FB stock is not the bargain it was back in January when it traded under $120, the long-term thesis is still in play. And given that Facebook CEO Mark Zuckerberg continues to operate with pinpoint execution, Facebook stock — which is still priced attractively at just 27 times 2018 estimates, three points below its five-year average — should reach $180 by year’s end, delivering additional returns of around 10%.

That climb will begin Wednesday.

Focus on Ad Volume

The main driver of Facebook earnings growth has been the company’s dominant advertising business. As such, on Wednesday, analysts will focus on the company’s advertising volume, which if it comes on the higher end of the company’s guidance, can make up for lower average prices. Facebook’s advertising growth accelerated in 2016, but it is expected to have declined a bit in the just-ended quarter.

The company is also seeing a decrease in average pricing, but much of that is due to the fact that newer advertising formats such as video now account for a larger chunk of the business. But here’s the thing: The pace at which FB continues to monetize its 2 billion users is also growing. Revenue was up an impressive 54% in 2016, following a healthy 44% year-over-year jump in 2015.

Will that trend continue this quarter?

For the three months that ended June, the Menlo Park, Calif.-based company is expected to earn $1.12 per share on revenue of $9.2 billion, translating to year-over-year growth of 15.4% and 43%, respectively. For the full year, ending in December, earnings are projected to rise 15% YOY to $4.87 per share, while revenue of $38.58 billion would rise roughly 40% YOY.

Double-Digit Digital

Under Zuckerberg, Facebook continues to operate on its stated objectives of bringing the world together. It has been a profitable goal. Facebook generated more than $3 billion in first-quarter profits, up 76% year over year, and sending its cash war chest north of $30 billion.

In the process, FB is killing any hope of survival for Snap Inc (NYSE:SNAP), parent of upstart messaging app Snapchat.

Spending on digital advertising is projected to rise 18% in 2017 to $229.3 billion, up from $194.6 billion in 2016. That increased ad spending affirms the extent to which advertisers continue to value digital and mobile reach when it comes to connecting with potential customers.

And this bodes well for Facebook’s dominating mobile capabilities, which gives it an advantage not only over Google and Snap, but also Twitter Inc (NYSE:TWTR).

Aside from Facebook’s core platform, the company also has WhatsApp, Messenger and Instagram to sustain its long-term growth rate. Consider, among these assets, only Instagram — with 700 million monthly active users (MAUs) — has fewer than 1 billion MAUs. This makes FB stock, which despite soaring to 52-week highs, a compelling bargain.

Bottom Line for FB Stock

With 2 billion active users on the platform, Facebook’s massive advertising network will remain a force to be reckoned with for many years to come. That half of the company’s revenue currently comes from North America, shows there’s still an underserved, addressable market overseas to tap.

In other words, regardless of what Wednesday’s earnings results reveal, the long-term bullish story for FB stock doesn’t change.

As of this writing, Richard Saintvilus was long FB.


Article printed from InvestorPlace Media, https://investorplace.com/2017/07/facebook-inc-fb-stock-could-hit-180-after-q2-earnings/.

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