Facebook (FB): Next Stop, $244?

Stock Market

Not even COVID-19 can put the brakes on the Facebook (FB) juggernaut. The social media giant reported earnings last Wednesday and investors liked what they saw.

So did Rosenblatt’s Mark Zgutowicz. So much so, the 5-star analyst reiterated a Buy rating on Facebook shares, while increasing the price target from $223 to $244. The figure implies upside of 19% from current levels. (To watch Zgutowicz’s track record, click here)

Heading into Facebook’s quarterly statement, all eyes were on two COVID-19 driven metrics: increased user engagement, and at the opposite end, reduced ad spend. Facebook delivered on both and at the same time soothed fears regarding the uncertain current climate.

Facebook experienced a sharp downturn in the second half of March as COVID-19’s impact was at its most acute and advertisers cut spending dramatically. Yet, the social media giant still delivered, with ad revenue rising by 17% year-over-year. Looking ahead to Q2, promisingly, Facebook noted that during the first three weeks of April ad spend was back to roughly last year’s levels. Where user engagement is concerned, as expected, the numbers were strong. Daily active users grew to 1.73 billion, an increase of 11%, while monthly active users grew by 10% over the last year to 2.6 billion.

Although Zgutowicz wonders whether the recent uptick in ad spend is sustainable or merely mid-sized businesses “taking advantage of cheap ad pricing,” the analyst remains upbeat following the “better than expected” results. Accordingly, Zgutowicz raised 2Q and CY20E revenue from $14.4 billion and $72.0 billion to $16.2 billion to $75.4 billion, respectively.

Zgutowicz said, “While staying cautious NT on ecommerce/ad spend trends that may be influenced by non sustainable factors including government stimulus and collapsed ad pricing, we remain confident FB will emerge stronger on the other end with more advertising and ecommerce market share,.”

The rest of the Street sees more upside, too. Facebook’s Strong Buy consensus rating is based on 31 Buys and 3 Holds. At $236.19, the average price target represents possible upside of 15% over the next 12 months. (See Facebook stock analysis on TipRanks)

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