KeyBanc Stays Bullish After Facebook's Q1 Print, Sees 'Opportunities To Drive Upside To Our Estimates'

Facebook, Inc. FB reported a first-quarter EPS beat of $1.69 against a $1.35 estimate after the close Wednesday and a sales beat of $11.97 billion vs. an $11.41-billion estimate. Facebook reaffirmed its sales guidance while projecting that monthly and daily active users in Europe could be flat or lower in the second quarter due to new privacy laws on the continent. 

The Analyst

KeyBanc Capital Markets' Andy Hargreaves maintains an Overweight rating on Facebook's stock with an unchanged $245 price target.

The Thesis

Facebook said in its Q1 report that its advertising revenue grew 50 percent year-over-year, or 43 percent on a constant currency basis, Hargreaves said in a note. The social media company's revenue came in 4 percent ahead of Hargreaves' estimate. Ad impressions per daily active user accelerated in the quarter and grew 8 percent, with room to continue rising in the near term and partly driven by continued growth in Instagram engagement, the analyst said. 

Facebook lifted its 2018 capital expenditure guidance from around $14 billion to $15 billion, which represents a 123-percent increase from last year, Hargreaves said. The company is likely increasing spend on building its data center shells and capacity for new features, which should support growth for several years, he said.

If Facebook's capital intensity is structural in nature, then investors could start valuing Facebook's stock on a free cash flow basis rather than EBITDA or EPS metrics, which could limit upside potential, Hargreaves said. 

Nevertheless, Facebook's opportunity to deliver upside to the Street's estimates remains compelling through pricing growth, incremental growth in areas like video and messaging and lower-than-expected expenses, the analyst said. 

"We recommend buying the stock and see opportunities to drive upside to our estimates through pricing growth, incremental growth in video and messaging and lower-than-expected expenses." 

Price Action

Facebook shares were trading up 8.5 percent off the open Thursday. 

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