5 Facebook Analysts On Q3 Results: Should Investors Buy On Weakness?

Social media giant Facebook, Inc. FB reported Thursday afternoon with third-quarter results that sent the stock lower, as investors appear to be concerned with a drop in U.S. and Canadian users.

The Facebook Analysts

Credit Suisse analyst Stephen Ju maintains an Outperform rating on Facebook with a price target lifted from $330 to $322.

Morgan Stanley analyst Brian Nowak maintains an Overweight rating on Facebook with a price target lifted from $295 to $315.

Raymond James analyst Aaron Kessler maintains a Strong Buy rating on Facebook with a price target lifted from $280 to $320.

Needham analyst Laura Martin maintains a Hold rating on Facebook. 

KeyBanc Capital Markets analyst Justin Patterson maintains an Overweight rating on Facebook with an unchanged $340 price target.

Credit Suisse Incrementally Bullish On Facebook 

The case for incremental bullishness on Facebook's stock is based on the increasing number of businesses and advertisers using the platform, Ju said in a note.

Facebook stated it has 200 million businesses on the platform and 10 million advertisers versus 180 million and 9 million last quarter, respectively, the analyst said. 

The implied free-to-paying conversion rate of 5% is still low and has room to move higher as businesses "rush to get online," he said. 

Facebook's operating expenditure guidance of $68 billion to $73 billion and capital expenditure guidance of $21 billion to $23 billion in 2021 is higher than expected, signaling a "return to more offensive footing," Ju said. 

Related Link: Jim Cramer On Big Tech Earnings, Why He Likes Alphabet

Morgan Stanley On Facebook's Ad Business Growth

Facebook should remain one of a few "tactical outperformers," as its strong ad performance confirms a faster-than-expected market recovery, Nowak said in a note.

Facebook added 1 million new advertisers in the quarter, as small-and-medium-size businesses are either coming to the platform to start or re-start their businesses, the analyst said. 

Facebook's business is likely growing at a faster pace than it was to start 2020, according to Morgan Stanley. 

RayJay's 3 Takeaways On Facebook 

Facebook's earnings report is highlighted by three positive takeaways, Kessler said in a note. They are:

• Total ad revenue accelerated from 12% in the second quarter to 21.5% and is now back at pre-COVID-19 levels of growth.
• Monthly active users increased at a "solid" rate of 11.9% and daily active users increased 12.3%.
• Adjusted EBITDA was 17% above expectations due to revenue upside in the quarter and operating expenses that were in line with estimates.

Needham's 4 Concerns About Facebook 

While Facebook reported a third-quarter beat, there are four areas of concern, Martin said in a note.

First, the company has the highest amount of regulatory risk among all Big Tech companies, the analyst said. 

Second, Facebook acknowledged that elevated usage during COVID-19 is now declining as in-person and social venues are opening. It also cautioned investors that U.S. and Canadian user numbers that fell in the third quarter will fall again in the fourth quarter.

Finally, impressions grew 35% in the quarter, but CPMs fell 9%. This "feels like a shift away from quality," she said. 

KeyBanc Says Facebook's Revenue Growth Sustainable 

Facebook's gains in e-commerce and management's commitment to investing in the business should sustain a 20% annual revenue growth profile moving forward, Patterson said in a note.

Current estimates call for 2021 revenue to rise by 26% over 2020 levels to $105.4 billion, the analyst said. 

FB Price Action

Facebook shares were down 7.4% at $260.06 at last check Friday.