Long-term views on Facebook are still positive from analysts despite the short-term impact of heightened spending from the social media giant and a strong US dollar.
Although Facebook (NASDAQ: FB) has increased its spending and was impacted by the stronger U.S. dollar (USD) in the first quarter, most analysts are still positive on the stock’s long-term performance.
The company beat estimates on profit, reporting an adjusted EPS (earnings per share) of 42 cents. This beat FactSet’s 41 cents expectation. However, sales were lower than expected at $3.54 billion from the $3.56 billion predicted by FactSet.
With Facebook blaming global currency headwinds for missing the sales target, the social media giant reported that its revenues could have been around $190 million higher. Unfortunately, the strong dollar caused the loss in revenue.
Facebook increased its GAAP expenses this quarter by 83% to $2.6 billion by acquiring WhatsApp. There was also an increase of 57% to $1.7 billion in non-GAAP expenses which could be attributed to marketing expenses, hiring as well as business costs.
However, user numbers were one of the more important measurements for analysts. The company reported 1.4 billion monthly active users on Facebook itself; in addition, Instagram recorded active monthly user numbers of more than 300 million with Facebook Messenger at 600 million and WhatsApp at 800 million users.
According to Raymond James analysts, Facebook seems to be “laying the foundation for long-term revenue growth.” These analysts also reiterated their outperform-rating coupled with a $90 price target, or around 8 percent above the current stock trading price.
Interestingly, analysts from Janney Capital Markets said that the user numbers reported by Facebook sees the company having “little need or interest to rush monetization.” In addition to the strong user numbers, Facebook also had growing video numbers with around 4 billion video views daily in the reported quarter. Janney Capital Markets analysts held on to their neutral rating and price target of $80.
With 73 percent of the company’s ad revenue coming from mobile advertising, analysts at RBC Capital Markets believe that Facebook is ready to take over the developing ad space. The analysts said, “The Internet is experiencing something of an inflection point in terms of demand for video and mobile advertising, and FB may well be the single biggest beneficiary of this inflection.” RBC went on to increase its price target to $105 from a previous target of $88.
Other sentiment from Pacific Crest Securities’ analyst Evan Wilson said that he sees both Instagram and video ads as only modest contributors moving forward. He also went on to highlight the high spending from Facebook and also total ad impressions that dropped in the first quarter by 62 percent year-over-year with ad prices increasing. Wilson’s sector weight stock rating means that it’s likely to perform in-line with others in the same sector, adding, “We continue to recommend other names as Facebook’s growth is slowing and margins are contracting while expectations remain extremely high.”
MT4 Chart: Facebook
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