With 5 Million Advertisers Now Supplying Ads, Facebook's Mobile Ad Business Delivers Earning Beat

Reviewing Facebook Inc FB's first-quarter results, Jefferies said the company's mobile advertising business delivered another huge earnings beat.

Q1 Print

Analysts Brian Fitzgerald and Timothy Shea noted the company's revenues rose 49 percent year-over-year to $8 billion, above the $7.8 billion consensus estimate, and GAAP earnings per share rose 99 percent to $1.04 compared to the Street forecast of $0.87. The company attributed the earnings beat to non-materialization of fears of rising expenses.

"The beat was broad based with strong growth across all verticals, marketing segments, and geos," the analysts said.

Among Other Metrics

• Ad business: Up 51 percent year-over-year to $7.9 billion, ahead of the $7.7 billion consensus estimate.
• Mobile ad revenue: Up 57 percent year-over-year versus the Street estimate of $6.5 billion.
• Average Revenue Per User for U.S. and Canada: $21.80, up 38 percent year-over-year.
• Daily Active Users in U.S. and Canada: 182 million.
• Global ARPU: $6.26, up 27 percent year-over-year.
• Global DAU: 1.3 billion.

Jefferies said the growth in ARPU and DAU are suggestive of many things including deep user engagement, best-in-class ad targeting capabilities, and broad advertiser demand.

Outlook

Jefferies noted the company expects GAAP expense growth of 40–55 percent, while it estimates 40 percent growth.

"We think it is reasonable to assume FB beats its expense outlook given the company's history of conservative outlook," the firm clarified.

The company guided capital expenditure to $7 billion to $7.5 billion compared to the firm's forecast of $7.25 billion.

Instagram: The Star Performer

Jefferies pointed to Instagram's 700 million monthly users, up from 600 million in June 2016, with Instagram Stories alone boasting of 200 million users, the firm noted.

With visual appeal and Facebook targeting and measuring ad platform, the firm believes Instagram appeals to advertisers of all stripes: brand and direct-response, large and small.

Raising Estimates, Upping Price Target

Jefferies raised its estimates for 2017. The firm maintains its Buy rating on the shares of Facebook but lifted its price target to $192 from $175.

In pre-market trading, Facebook shares were edging down 0.71 percent at $151.80.

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