Despite Headwinds, Analysts See Even Larger Facebook Upside Into 2016

Facebook Inc. (NASDAQ: FB) reported its first-quarter financial results Wednesday after the markets closed, and now analyst calls have poured in for this social media giant. 24/7 Wall St has briefly looked at earnings and given summary details for each analyst call that it has seen.

As for a brief summary of the earnings, the leader of social media posted $0.42 in adjusted earnings per share and revenue of $3.54 billion, up 42%. Thomson Reuters had consensus estimates set at $0.40 per share and revenue of $3.56 billion. Facebook’s non-GAAP operating margin fell to 52% in the first quarter from the 57% reported a year ago.

Sterne Agee’s Arvind Bhatia reiterated Facebook’s Buy rating and raised the price target to $92 from $85. Foreign exchange (FX) headwinds mask the upside for Facebook. The first quarter of 2015 was essentially in line, but user metrics, including reach and engagement, exceeded expectations. Excluding the impact of FX (which was worse than expected), revenue would have been ahead of the consensus estimate. One major point that Sterne Agee noted was that it believes very few companies in the world today have the monetization opportunity ahead that Facebook does. Facebook’s user base of 1.44 billion, WhatsApp’s 800 million, FB Messenger’s 600 million and Instagram’s over 300 million users provide a long runway for growth and multiple ways to monetize.

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Credit Suisse’s John Edwards reiterated an Outperform rating for Facebook with a $106 price target. The brokerage firm also has Facebook listed as one of its top picks for 2015. Credit Suisse explained its favorable valuation in its report:

Valuation: Our Discounted cash flow-based price target remains unchanged at $106, based on a 10.5% weighted average cost of capital and 3% terminal growth rate.

Investment Case: In an earnings report of relatively few surprises, we highlight what we believe is an acceleration in the FX neutral growth rate for Facebook’s advertising revenue in Europe as a key source of outperformance. This is likely due to rising adoption of ad units which have already gained wide adoption in North America.

Wells Fargo has an Overweight rating for Facebook and it set its valuation range of $88 to $90. The valuation range reflects a 17.8-times EV-to-EBITDA multiple on the 2016 fiscal year, which represents 29% year-over-year growth. The bank of Warren Buffett believes that Facebook’s leadership position, improving mobile monetization, growth profile and long-term potential merit a premium valuation. Risks to Wells Fargo’s valuation include slowing user growth, competition for advertising dollars and regulatory risk.

As a result, the firm described its investment thesis:

We view the evolution of social platforms as the most significant digital marketing development since the emergence of search, and believe Facebook’s audience scale, targeting capabilities, and social connectivity offer opportunity for marketers across the category, size, and regional spectrum. In short, we view marketer participation on the Facebook platform as compulsory, and expect Facebook to be the leading share beneficiary of funds flowing social and mobile ad platforms.

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