Facebook Analysts Break Down Q3 Earnings: 'Big Investments For A Big Vision'

Facebook, Inc. FB shares were retreating Tuesday after the social media giant reported yet another quarter of huge profits and impressive growth.

On Thursday, Facebook reported third-quarter adjusted EPS of $3.22 beating consensus analyst estimates of $3.19. Revenue of $29.01 billion fell just short of analyst expectations of $29.57 billion. Revenue was up 35% from a year ago.

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Facebook reported 1.93 billion daily active users, in-line with analyst estimates.

Looking ahead, Facebook guided for fourth-quarter revenue of between $31.5 billion and $34 billion, missing analyst estimates of $34.8 billion. Facebook also said it will be adding $50 billion to its stock buyback program.

Facebook's 'Big Investments': Bank of America analyst Justin Post said Facebook is making “big investments for a big vision.”

“Investment spend will be driven by AI/ML tech to help with ad targeting, and big investments in the metaverse (virtual reality HW, content, etc) which FB sees as the next generation of computing (and wants to lead given Apple issues),” Post wrote.

Credit Suisse analyst Stephen Ju said Facebook shareholders should anticipate 2022 will be an investment year for Facebook.

“In our view the worst case scenario from a near-to-medium term perspective is investors wait until the 3Q22 earnings report and the 2023 guidance – with the resulting signal that FCF will return to growth – before adding to positions,” Ju wrote.

Wells Fargo analyst Aaron Rakers said NVIDIA Corporation NVDA and Intel Corporation INTC will likely be two large beneficiaries from Facebook’s ramp in capex.

“Recently a semiconductor industry analyst had noted that Facebook would be going ‘all in’ on NVIDIA GPUs vs. using Intel's Habana solutions, while also noting that it expects to deploy Intel's Mount Evans IPUs (Infrastructure Processing Units) potentially in every server,” Rakers wrote.

Difficult Environment For Facebook?: Stephens analyst Nicholas Zangler said Facebook struggled with the same Apple, Inc. AAPL policy changes that negatively impacted Snap’s advertising business.

“Like SNAP, FB expects ongoing pressure from Apple iOS ATT changes as well as advertising softness across those advertising partners facing supply chain challenges and labor shortages,” Zangler wrote.

RBC Capital Markets analyst Brad Erickson said Facebook’s numbers suggest it has mostly dodged the Apple bullet.

“FB delivered a modest miss for Q3 and while its Q4 guidance was also light of sell-side estimates, the combination of more limited effects from Apple privacy changes(ATT/IDFA), new expense disclosure and increased stock buyback made for a better-than-feared outcome,” Erickson wrote.

Barclays analyst Ross Sandler said Facebook’s numbers weren’t exceptional, but the company is doing a good job of navigating a difficult environment.

“The company is doing a good job of managing through a tough situation with the iOS changes and other macro factors, along with the repeated drumbeat of negative news,” Sandler wrote.

Facebook's Stock Valuation: Citigroup analyst Jason Bazinet said Monday that Facebook’s relatively strong performance relative to social media competitor Snap Inc SNAP may trigger a relief rally in Facebook shares.

“Given more subdued expectations following SNAP's miss and weaker guide last week, we would not be surprised to see the shares trade a bit higher [Tuesday],” Bazinet wrote.

Rosenblatt Securities analyst Mark Zgutowicz said Facebook shares appear to be oversold following its post-earnings drop.

“We see limited downside near-term at ~1.0x the S&P NTM P/E, with +20% upside on more stable near-term expectations,” Zgutowicz wrote.

Facebook Ratings, Price Targets:

• Bank of America has a Buy rating and lifted the price target from $385 to $400.
• Rosenblatt has a Neutral rating and $400 target.
• RBC Capital Markets has an Outperform rating and lowered the price target from $425 to $415. 
• Credit Suisse has an Outperform rating and lowered the price target from $500 to $430.
• Barclays has an Overweight rating and lowered the price target from $430 to $420.