Why an­a­lysts are chas­ing Face­book shares higher

Financial Mirror (Cyprus) - - FRONT PAGE - By Chris Lange

Face­book Inc. (NAS­DAQ: FB) won on earn­ings through ex­plo­sive mo­bile us­age, and as a re­sult the stock is cruis­ing near all­time highs. Just look­ing around th­ese days, it is ev­i­dent that most peo­ple use their smart­phones for so­cial me­dia, whether it’s post­ing pic­tures of their lunch to In­sta­gram or hit­ting up Face­book Mes­sen­ger at a red light. The ob­ses­sion is very real, es­pe­cially on the mo­bile plat­form. An­a­lysts have seen ev­i­dence of this and are rais­ing their rat­ings and tar­gets to new highs, re­flect­ing not only the strong earn­ings from this quar­ter but also the equally strong out­look as well.

Face­book re­ported that rev­enue was $4.501 bln, up from $3.203 bln last year and above the $4.37 bln con­sen­sus es­ti­mate from Thom­son Reuters. The ad­justed earn­ings per share (EPS) was $0.57, ver­sus $0.43 a year ago and the con­sen­sus es­ti­mate of $0.52.

Of the $4.501 bln in rev­enues, some $4.299 bln was in ad­ver­tis­ing, up 45%. Face­book’s to­tal costs and ex­penses rose by 68% to $3.042 bln. Ex­clud­ing the im­pact of year-on-year changes in for­eign ex­change rates, the com­pany showed that to­tal rev­enue would have in­creased by 51%.

The met­rics that mat­ter were as fol­lows: - Daily ac­tive users (DAUs) were 1.01 bln in Septem­ber, up 17%. - Mo­bile DAUs were 894 mln, up 27% y-o-y. - Monthly ac­tive users (MAUs) were 1.55 bln, up 14%. - Mo­bile MAUs were 1.39 bln, up 23%.

What is shock­ing about th­ese statis­tics is that with a global pop­u­la­tion of roughly 7.4 bln, DAUs to­tal 13.6% and MAUs to­tal nearly 21% of the en­tire global pop­u­la­tion. Con­sid­er­ing this global ex­po­sure, Face­book is eas­ily the largest me­dia stock out there, with a mar­ket cap of over $300 bln. The next largest me­dia stock would be Dis­ney with a mar­ket cap of roughly $190 bln.

Mak­ing such a mon­u­men­tal move to new highs, Face­book is draw­ing an­a­lyst calls like moths to a flame. While most firms have Buy or Out­per­form rat­ings, many price tar­gets were hiked: - Mer­rill Lynch (Buy) in­creased its ob­jec­tive to $125 from $115. - BMO Cap­i­tal Mar­kets raised $105 from $94. - Stifel Ni­co­laus $108. - RBC Cap­i­tal from $105. - Mor­gan Stan­ley $120 from $110. - Credit Suisse (Out­per­form) raised to $135 from $115. - Bar­clays (Over­weight) raised to $140 from $105. - FBR $118. - Piv­otal Re­search (Buy) raised to $134 from $127. - No­mura re­it­er­ated a Buy rat­ing with a $115

(Out­per­form)

raised

its

(Over­weight)

tar­get to

(Buy) raised to $120 from

(Out­per­form) raised to $130

raised

to

to $125 from tar­get.

Shares of Face­book were re­cently trad­ing up nearly 6% at $110.06, af­ter hit­ting a new all-time high. The stock has a con­sen­sus an­a­lyst price tar­get of $112.73 and a 52-week trad­ing range of $72.00 to $110.65.

Face­book’s growth rates may slow, par­tic­u­larly as its pen­e­tra­tion ef­forts reach ar­eas with­out In­ter­net con­nec­tiv­ity or where lit­er­acy lev­els nec­es­sary to use the so­cial net­work are very low. CEO Mark Zucker­berg would like to solve the In­ter­net pen­e­tra­tion prob­lem by cre­at­ing tech­nol­ogy that will cover the world in con­nec­tiv­ity. How­ever, his most re­cent ef­forts in In­dia, the world’s sec­ond largest na­tion by pop­u­la­tion, have met some re­sis­tance. The level of push­back may in­crease the odds against his long-term “In­ter­net ev­ery­where” plan.

Zucker­berg’s prob­lem, among oth­ers, is that crit­ics be­lieve his de­sire to in­crease the In­ter­net pop­u­la­tion is only a means to cre­ate a larger au­di­ence for Face­book. While that could be true, it does not ar­gue that peo­ple should be de­prived of the In­ter­net be­cause Zucker­berg might, and only might, add them to his empire. Spread­ing the In­ter­net has ben­e­fits in and of it­self, not the least of which is giv­ing hun­dreds of mil­lions of peo­ple ac­cess to the out­side world via news, en­ter­tain­ment and so­cial shar­ing.

Whether Zucker­berg can ex­pand In­ter­net avail­abil­ity widely, he does not need it as a means to reach short-term earn­ings goals. Face­book has over $15 bln in the bank, which should sup­port any ef­forts to drive the com­pany’s au­di­ence higher, al­though user ex­pan­sion ap­par­ently takes care of it­self. There is no ev­i­dence that Face­book “buys” users. The so­cial as­pect of the so­cial net­work works well enough on its own. Growth of other so­cial net­works sup­ports that.

Could Face­book’s user base reach 2 bln even with­out univer­sal In­ter­net cov­er­age? As quickly as it is grow­ing, Face­book has a chance.

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