Facebook's Q2 Earnings: What To Expect

Facebook, Inc. FB is scheduled to report second-quarter results Wednesday afternoon, and some Wall Street analysts are turning incrementally bullish ahead of the print.

The Analysts

• Deutsche Bank's Lloyd Walmsley maintained a Buy rating on Facebook with a price target lifted from $205 to $235.
• Bank of America Merrill Lynch's Justin Post maintained a Buy rating on Facebook with a price target lifted from $215 to $230.

Deutsche Sees Room To Run

Facebook may report a slight decline from the first quarter in North American and Europe daily active users, although trends in Europe could stabilize after the enaction of the General Data Protection Regulation, Walmsley said in a note. (See Walmsley's track record here.) 

Instagram's impression growth likely more than offset any declines in the core social media platform, as the picture- and video-sharing platform likely saw 160-percent impression growth, the analyst said. 

Deutsche Bank's firsthand checks with advertising contacts and marketing reports from key ad buyers reaffirm three key points that support a bullish stance, Walsmley said:

• Most advertiser budgets were increased above expectations in the quarter.
• Most advertisers already struck direct relationships with third-party data brokers ahead of the company's move to close access.
• Only a "small group" of advertisers paused their spend amid negative press, but most have since returned to prior spending levels.

Related Links Analyst: Negative Press, Privacy Scandal Won't Keep Facebook From Having A Solid Quarter

Bank Of America: 5 Items To Watch 

Facebook investors should look for five key items in the company's Q2 print and conference call, Post said in a note. (See the analyst's track record here.)

They are:

• User growth trends and any impact from data privacy issues and GDPR.
• Instagram user growth and related ad load.
• Video initiatives at Faceboook's Watch and Instagram's IGTV.
• The potential for Stories traction across the company's entire ecosystem.
• Any commentary on data privacy challenges and investigation by government bodies.

Facebook stock is trading at 22 times 2019 estimated P/E; if the company can exit the earnings report and conference call with "no major surprises," investor attention should shift toward lifting the stock's valuation, Post said. BofA's new $230 price target is based on a 25 times 2019 estimated P/E multiple, two turns higher than before.

Instagram 'A Major Growth Area'

Instagram is "becoming a major growth area of the business and Wall Street is super-focused on growth areas," TD Ameritrade Senior Trading Specialist Shawn Cruz told Benzinga. Cruz expects strong numbers from Instagram in Facebook's Q2 report. 

Investors should pay attention to commentary on any changes made to Facebook's business in reaction to regulatory or legal demands, Cruz said. 

Price Action

Facebook stock was up 0.38 percent off the open Wednesday at $215.48. 

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