‘ASTONISHING’ RESULTS FOR FACEBOOK IN Q2

reported yet another set of impressive results in the second quarter, highlighted by revenue that was seven per cent higher than analysts had forecast and up 59 per cent year-over-year, operating income that was 16 per cent above the Street, and 49 per cent annual growth in advertising revenue. “These results are fundamentally astonishing,” said Mark Mahaney at RBC Capital Markets, adding that Facebook is benefiting from a new surge in advertiser demand. That’s being driven by new formats such as video and Facebook’s Canvas platform, which is designed to help businesses showcase their products and tell stories on mobile devices. The company’s improved targeting and campaign management tools is also helping, as more evidence is emerging that Facebook ad campaigns generate high returns on investment. Meanwhile, product improvements and new features such as Live Video, are providing a boost to both monthly average user and engagement growth. Pointing out that Facebook’s non- GAAP earnings per share of 97 U. S. cents was far ahead of consensus at 81 U. S. cents, Mahaney told clients “the leverage in this business model is substantial. “These are the best fundamentals in the Internet today, in terms of growth and profitability,” the analyst said, raising his price target on Facebook shares to US$ 170 from US$ 165. They closed Thursday at US$ 125. He also noted that Facebook’s management is correctly prioritizing the user experience, while at the same time developing better solutions for advertisers. The company is also investing effectively against several material greenfield opportunities, such as video ads, Instagram monetization, messaging platforms and virtual reality. Facebook’s revenue growth came in at the fastest pace since the fourth quarter of 2014, and Brian Wieser at Pivotal Research Group remains highly optimistic given how many levers of growth have yet to be pulled. The analyst raised his target price by a dollar to US$167, highlighting the fact that Facebook’s advertising outperformance versus consensus expectations in Q2, was nearly as big as Twitter Inc.’s (the industry’s #4 player) entire advertising revenue base in the quarter. While management warned that second-half growth could slow, Wieser still sees Facebook posting revenue gains of 52 per cent 49 per cent, respectively, in Q3 and Q4. “Facebook’s absolute scale and capacity to narrowly target consumers should provide the core platform with significant ad-pricing power and opportunities to continuously improve its inventory yield on an ongoing basis, and Instagram will help too,” the analyst added.