Facebook's Strong Quarter, Outlook Have Sell-Side Hitting Like On The Stock

Facebook Inc. FB was a pleasant surprise to analysts with third quarter ad revenue growth up 31% year over year to beat Street estimates by nearly 2%, with operating income about 13% above the consensus forecast.

Both daily and monthly active users of the platform continued to increase, even as the company has weathered an ongoing beat of difficult news surrounding its advertising and privacy policies.

The Analysts

Morgan Stanley's Brian Nowak kept an Overweight rating on Facebook and raised the target price from $235 to $250. 

Raymond James analyst Aaron Kessler kept an Outperform rating and $230 price target on the stock.

Credit Suisse analyst Stephen Ju upped the target price from $260 to $270 and kept an Outperform rating.

Stifel's John Egbert kept a Hold rating on the stock but raised the target price from $205 to $215.

KeyBanc's Andy Hargreaves reiterated an Overweight rating on Facebook with a $240 price target.

Tigress Research analyst Ivan Feinseth kept a Buy rating on the stock.

The Theses

Analysts acknowledge an overhang from regulatory issues as Facebook and other big social media companies continue to be in the crosshairs in Washington. But Hargreaves said there are "few reasonable outcomes" of the regulatory interest that would be likely to permanently hurt Facebook's share value.

"We continue to believe Facebook retains excellent growth prospects across its platforms and has the potential to grow costs below its established expectations," Hargreaves wrote in a note.

Facebook reportedly took care of one of those issues this week, agreeing to pay a $646,000 fine over the unauthorized mining of user data by a British firm during the 2016 election, likely helping drive the stock up on Thursday.

What Backlash?

The seemingly constant scrutiny around Facebook's practices also doesn't seem to be hurting the stock.

"Even in the environment of ongoing controversy and backlash, Facebook continues to show user growth and report record revenue," Feinseth noted.

"Overall, 3Q was a solid quarter for Facebook and may point investors back toward its strong fundamentals," added Egbert.

Ju said maybe more important than the results were Facebook management’s initial expectations for 2020, showing more growth above 30% and slower deceleration of revenue growth.

Ju kept the stock Outperform based the potential for stronger ad revenue growth on more product innovation and was more bullish than others.

“Street models are too conservative and underestimate the long-term monetization potential of other billion-user properties like Messenger and WhatsApp, optionality for faster FCF growth on greater efficiency on content screening/security costs," he wrote.

Nowak also cited this "multi-year layer cake of revenue drivers," and praised Facebook's ability to excel at innovative monetization of its various platforms and products.

Price Action

Facebook investors were also hitting the like button Thursday, pushing the stock up 1.8% to $191.68.

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