Wall Street Weighs In On Facebook's Big Quarter: Innovation Accelerates Amid Pandemic

Facebook, Inc. FB shares jumped 5.9% on Thursday after the company reported that ad revenue has stabilized following a steep drop in March.

On Wednesday afternoon, Facebook reported first-quarter revenue of $17.74 billion, up 18% from a year ago. The social media giant also reported 2.99 billion monthly users on its platforms, up from 2.89 billion in the fourth quarter. First-quarter EPS was $1.71, slightly below consensus analyst estimates of $1.75.

Several analysts have weighed in on Facebook.

Ad Revenue Stabilized

Instinet analyst Mark Kelley said the fact that ad revenue is trending flat compared to a year ago in the first two weeks of April is an extremely bullish sign.

“The most negatively impacted verticals were, unsurprisingly, travel and automotive, while advertising for the gaming industry continues to grow and technology and eCommerce were noted as relatively stable,” Kelley wrote in a note.

UBS analyst Eric Sheridan said Facebook’s business is demonstrating resilience in an extremely difficult environment.

“Across a volatile end demand environment and investor fears of a slowdown in digital advertising trends, FB exceeded our estimates & provided initial April operating trends that showed dramatic positive rate of change vs March trends,” Sheridan wrote.

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Bank of America analyst Justin Post said the negative impact from coronavirus (COVID-19) wasn’t as bad as feared, and the rise in social media engagement provides new opportunities for Facebook.

“While ad revenues and margins will be depressed in 2020, we believe FB has strong ability to capitalize on the surge in usage and, long-term, we continue to see several under-monetized and under-valued FB assets (Messenger, Marketplaces, Watch) and material eCommerce growth opportunities,” Post wrote.

Social Distancing Winner

Morgan Stanley analyst Brian Nowak said Facebook’s long-term bullish thesis still hinges on its massive collection of more than 8 million advertisers competing to reach Facebook’s unparallelled base of nearly 3 billion users.

“FB's leading reach, targeting, advertiser base and ad ROI shine thru the recession as ad rev thought to be down double digits is flat and stabilized,” Nowak wrote.

MKM Partners analyst Rohit Kulkarni said social media is emerging as a clear winner from social distancing.

“We believe innovation at FB has accelerated amidst the pandemic as engineers and product managers seem to have become more productive while working from home,” Kulkarni wrote.

Raymond James analyst Aaron Kessler praised the adaptability of Facebook’s ad business and said impressions growth was particularly impressive.

“Ad Impressions accelerated to 39% y/y (vs. 31% in 4Q) in part due to product optimizations prior to the pandemic and from increased user engagement,” Kessler wrote.

Well-Positioned For Recovery

Rosenblatt Securities analyst Mark Zgutowicz said Facebook seems well-positioned to emerge from the economic downturn stronger than ever.

“While staying cautious NT on ecommerce/ad spend trends that may be influenced by nonsustainable 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,” Zgutowicz wrote.

Needham analyst Laura Martin said Facebook appears to be taking the economic downturn seriously despite its business being relatively insulated.

“We are heartened to see FB cutting its FY20 CapX and expense growth guidance in April compared to its Feb (pre-COVID) guidance because this suggests FB is respectful and better positioned in case a macro revenue downdraft is longer than expected,” Martin wrote.

Ratings And Price Targets

• Instinet has a Buy rating and $260 target.
• UBS has a Buy rating and $242 target.
• Bank of America has a Buy rating and $240 target.
• Morgan Stanley has an Overweight rating and $230 target.
• MKM Partners has a Buy rating and $240 target.
• Rosenblatt Securities has a Buy rating and $244 target.
• Needham has a Hold rating and no target.
• Raymond James has a Strong Buy rating and $240 target.

Facebook's stock traded around $204.21 per share at time of publication.