The Street will be tuning into Facebook’s (FB) earnings call, when the social media giant reports Q2 financial results on Wednesday. Investors and market watchers alike will be keen to find out how the first full quarter spent under the coronavirus cloud has impacted Facebook’s balance sheet.
The differing results for Facebook’s social media rivals in the most challenging of quarters makes it difficult to tell how Facebook will perform. Recall that while Snap underwhelmed, Twitter (despite the decline in revenue) posted some eye-popping growth figures.
Ahead of the print, RBC’s 5-star analyst Mark Mahaney points out the key items to focus on, starting off with the main focal point – ad revenue.
The long-time bull expects Facebook’s ad revenue growth rate will be up by 5% year-over-year compared to the Street’s call for 2% growth.
“We believe our estimates are reasonable,” Mahaney said, “Given SNAP and TWTR results, but would still note there may be conservativism in H2:20 Street estimates given IAB (Interactive Advertising Bureau) survey results that suggest a near-full back-half recovery in U.S. Online Ad Spend vs. Street’s 10% H2:20 growth for FB.”
Alongside ad spend, another key metric to look out for will be user growth and engagement. Mahaney is calling for year-over-year MAU (monthly active users) growth of 7% to 2.59 billion, which the analyst believes might also be a “conservative” estimate. This is due to positive results from a recent RBC Social Media survey which indicated Facebook’s penetration “rose sequentially for the first time since June 2017.” Twitter’s record high DAU (daily active user) growth in Q2, could also indicate a beat might be in the cards.
Lastly, Mahaney will be looking for margin levels. The analyst is expecting a 23.5% Non-GAAP operating margin, which will indicate a drop of approximately 16pts year-over-year, as the analyst “doesn’t expect FB to pause investments despite major short-term Revenue headwinds.”
So, down to business, what does it all mean for investors? Mahaney reiterated an Outperform (i.e. Buy) rating on FB, along with a $271 price target. Expect upside of 16% from current levels, should Mahaney’s target be met over the following months. (To watch Mahaney’s track record, click here)
Overall, the rest of the Street is hardly less effusive. Out of 34 analysts to have posted a Facebook review over the last 3 months, 5 recommend to Hold while the rest say Buy. A Strong Buy consensus rating is backed by a $258 price target. The analysts, therefore, expect FB shares to be adding a 12% premium over the next year. (See Facebook stock analysis on TipRanks)
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