Earnings

Despite the scandals and controversies, Facebook analysts agree on one thing: the social media giant keeps growing with no sign of slowing down. Analysts also agree that by all metrics, the company exceeded expectations posting strong fourth quarter numbers after the bell on Wednesday.

Analysts pointed out that advertisers continue to spend money on the platform with record user growth and revenue still increasing and maybe things aren’t as bad as feared. Facebook CEO Mark Zuckerberg said on the call that, “”We’ve started to turn a corner and have a clear plan for what we need to do now.”

Share of the the company are up more than 11 percent in premarket trading.

Morgan Stanley analyst Brian Nowak titled his note, “This story is starting to get good,” and raised his price target to $190. He went on to say, “Facebook’s strong finish to 2018 – across the board 4Q revenue, EBIT, EPS and active user beats – speaks to the strength of its engagement, ad offering and ability to drive earnings power…even while navigating public scrutiny and aggressively investing to improve its platform safety/security, product offerings, and monetization.”

Evercore ISI analyst Anthony DiClemente said, “while growth should continue to slow near-term, longer term opportunities remain compelling as does broader bull thesis.”

Bank of America’s Justin Post went so far as to say, “While the 2019 margin outlook will continue to draw questions, we think 1Q revenue outlook appears conservative with upside potential.”

Mark Mahaney from RBC raised his price target also and said, “we feel we could be in a period of sustained rerating as the worst Facebook fears appear not to have been realized.”

UBS analyst Eric Sheridan had a slightly different take pointing out that, “while management tone and operating strength is now better than mid-2018, we remain on the sidelines as the move from Q4 lows (~$130) to current stock price (~$170) has already provided a solid rebound ahead of 2019 (which still contains product/platform transition & regulatory volatility that should be factored into the risk/reward).”

Here’s what the other analysts think:

“While Facebook still has much work to do, it is clear to us that management now feels more comfortable increasing its efforts around new products and experiences… We believe end-to-end encrypted messaging integration across Messenger, Instagram, & WhatsApp will be one of these experiences… But FB is also focused on payments on WhatsApp, commerce & shopping on Instagram, FB Watch, & groups and communities… Accordingly, we believe Facebook is heading into a heavier product cycle than we’ve seen over the past couple years… 4Q results and the forward outlook support our bull thesis that Facebook can manage revenue deceleration and slow opex spending more in 2020, which should drive significant EPS acceleration… We project 26% FXN revenue growth and 696bps of operating margin compression in 2019, but we believe FB can increase revenue 20%+ in 2020, driving mid-teens EPS growth…”

“FB’s strong finish to 2018 – across the board 4Q revenue, EBIT, EPS and active user beats – speaks to the strength of its engagement, ad offering and ability to drive earnings power…even while navigating public scrutiny and aggressively investing to improve its platform safety/security, product offerings, and monetization… We believe holiday season direct response advertising and Instagram News Feed and Stories monetization drove the better than expected ad growth…”

“While growth should continue to slow near-term, longer term opportunities remain compelling as does broader bull thesis. While macro factors and potential targeting regulation could challenge 2019, management highlighted opportunity in commerce on Instagram, greater adoption of Watch, and integration of messaging platforms. Our confidence grows, as some key concerns subside. We believe a positive multiple re-rating is justified..”

“While 2019 remains a year of transition, FB mgmt. produced a Q4 2018 earnings report and initial 2019 commentary that embraced a more offensive narrative around forward opportunities (Stories, Watch, communities, messaging, hardware) that should give investors a more confidence in engagement trends and revenue momentum. 2019 revenue, operating expense & capex guidance remains relatively unchanged with changes to our estimates largely driven by better Q4 revs runrate and eps beat… While mgmt. tone and operating strength is now better than mid-2018, we remain on the sidelines as the move from Q4 lows (~$130) to current stock price (~$170) has already provided a solid rebound ahead of 2019 (which still contains product/platform transition & regulatory volatility that should be factored into the risk/reward)…”

“At the margin, we are incrementally positive… We feel we could be in a period of sustained rerating as the worst FB fears appear not to have been realized… We feel the current Revenue growth deceleration is modest (35% Y/Y growth in Q3 to 33% in Q4…very modest), and believe DAU’s increasing in the U.S. for the first time in 3 qtrs is a positive sign.”

“Facebook remains our top 2019 pick on washed out sentiment and potential 2H revenue stabilization from stories, messaging and video monetization (which seems to be ramping even earlier than expected)… While the 2019 margin outlook will continue to draw questions, we think 1Q revenue outlook appears conservative with upside potential, while the 2H y/y revenue comp is more favorable. Fundamentally, we believe FB’s systems are in a better place (ie few 2018 US election issues), FB appears to be on a strong revenue trajectory between Instagram momentum and Messenger monetization, expense growth is likely at a y/y peak, and the FB news flow seems more likely to get better than worse…”

“On the call, management guided revenue growth in FY19 to continue to decelerate sequentially and more specifically, expects 1Q19 revenue growth to decelerate by a mid-single digit percentage… This was in line with our prior assumptions, so we are making only minor adjustments to our FY19 revenue forecast – $70.01bn (vs. prior GSe of $69.80bn and compared to consensus prior to print at $68.40bn) and EPS forecast to $7.98 (consensus at $7.39)… As with the last few quarters the market was focused on engagement, which came in at 65.6%, compared to 65.8% in 3Q18 and consensus of 65.8%… Management also estimates that more than 2.7 billion people now use Facebook, WhatsApp, Instagram, or Messenger each month (vs. 2.6bn in 3Q18), and that more than 2 billion people use at least one of their Family of services every day on average… These family user metrics are de-duplicated across apps, and represent the company’s estimate of unique individuals rather than unique accounts…”

“Facebook reported strong 4Q upside and a pivot towards a “back to normal” focus on innovation, concentrating on projects that “can have a major improvements on people’s lives”… Mark Zuckerberg listed several key product areas, most notably eCommerce/shopping products on Instagram… Despite repeated calls for “deceleration” throughout the call (seven times by our count) and limited estimate changes, we feel better about the ad outlook and see the innovation pivot creating product catalysts for the balance of the year… One concern the company highlighted, however, was targeting risks associated with potential privacy rules from platforms like iOS, Android, and/or browsers… This is particularly noteworthy post the Facebook Research App given Apple’s move to invalidate Facebook’s root certificates across internal test apps, rendering them unopenable to FB employees… We view escalation here as a tail risk, for now, but one that warrants vigilance given the potential for revenue disruption and headline risk…”

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