SunTrust's Bob Peck Remains Positive On Facebook Heading Into Q2 Earnings

Facebook Inc FB reports its second-quarter financial results on July 27, and SunTrust's Bob Peck projects another "strong" quarter from the social media giant.

"Advertisers and Facebook distribution partners we spoke with are pointing to above consensus growth QoQ for Facebook + Instagram. Of note, April and May continued strength from March and June was above seasonal trends," Peck wrote in a note.

Peck expects revenues/EPS for the second quarter and 2016 of $6.0 billion/$0.83 and $26.1 billion/$3.65, respectively. The Street expects revenue/EPS of $6.01 billion/$0.81 for the second quarter and $26.17 billion/$3.56 for 2016.

The analyst sees second-quarter ad revenues of $5.85 billion, up 53 percent year-over-year and up 13 percent quarter-over-quarter versus 15 percent quarter-over-quarter rise in the second quarter of 2015 and mobile revenues of $4.87 billion, up 14 percent quarter-over-quarter versus 19 percent growth in the same period last year.

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"We estimate Instagram could add ~$317 million, resulting in Core Facebook revs +11 percent QoQ (+13 percent ex leap year)," Peck highlighted.

The analyst attributed the expected sequential rise in ad revenue on positive trends for new ad units — DPAs, Instant Articles, Carousel, etc. — as well as an incremental lift from Instagram. Peck said Instagram could drive about $1.5 billion revenue in 2016 and about $3 billion in 2017.

Among the key positives, the analyst said core Facebook estimates call for about 45 percent year-over-year growth, 57 percent core mobile, with more than 3 million Facebook and 200 thousand Instagram advertisers showing continued traction.

"Early days for Instagram and Oculus while Messenger (>900 million), WhatsApp (>1 billion) and Search (>1.5 billion per day) remain unmonetized. Lastly, Facebook is under-monetized in terms of time spent vs. ad dollars — products like Live and video discovery could help to narrow the gap," Peck added.

Peck has a Buy rating and $135 target price on Facebook stock, which closed Friday's regular trading at $116.86.