Facebook's Q1: Things To Like And Areas Of Concern

Facebook Inc FB's stock was trading lower by more than 1 percent ahead of Thursday's market open in reaction to the company's first-quarter earnings report out Wednesday afternoon.

JMP Securities' Ronald Josey maintains a Market Outperform rating on Facebook's with a price target boosted from $165 to $170 after the positive aspects from the earnings report outweighed the areas of concern.

The Positives

Josey highlighted four notable takeaways from the report.

First, monthly active users grew 17 percent year-over-year in the quarter to 1.94 billion, which marks the fifth consecutive quarter of MAU growth. The analyst cited product improvements, Internet.org initiatives and third-party promotional data plans in markets like India.

Second, daily watch time for live broadcasts grew four-fold year-over-year in the quarter.

Third, ad pricing growth in the quarter re-accelerated to 14 percent year-over-year, up from just 3 percent in the prior quarter. In fact, Facebook performed well in what the analyst referred to as the most difficult comp of the year.

Finally, Facebook saw its revenue growth accelerate in Europe, Asia, and the rest of the world.

The Concerning

Josey did note three concerning aspects of the report:

1. Impression growth decelerated in the quarter to 32 percent versus 49 percent in the prior quarter.
2. Advertising revenue coming from the United States and Canada decelerated to 47 percent year-over-year in the quarter versus 56 percent in the prior quarter. This may of concern since there were no one-time items that could easily explain the deceleration.
3. The analyst believes that video content costs will spread across cost of goods sold, sales and marketing, along with research and development.

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