- Facebook announced its first-quarter earnings on Wednesday and beat Wall Street’s expectations on revenue growth and monthly active users.
- However, revenue growth is set to slow this year as advertising spend moves from Facebook’s Newsfeed to Stories.
- Facebook also expects to be fined a record $3-5 billion by the Federal Trade Commission after several data-privacy scandals.
- Most analysts raised their price targets for Mark Zuckerberg‘s company, citing its strong growth potential.
- Watch Facebook trade live.
Facebook’s first-quarter earnings on Wednesday beat Wall Street’s expectations on revenue growth and monthly active users.
However, Facebook warned revenue growth would slow this year as advertising spend moves from Facebook’s Newsfeed to Stories. It also set aside $3 billion in anticipation of a record-breaking fine from the Federal Trade Commission (FTC) after a string of data-privacy scandals.
Revenue rose 26% to $15.08 billion ($14.97 billion expected). Monthly active users rose to 2.38 billion (2.37 billion expected). Earnings per share (GAAP) were $0.85 ($1.62 expected), although Facebook said it would have been $1.89 if it hadn’t set aside funds for the FTC fine. Advertising revenue was $14.91 billion versus a consensus forecast of $14.78 billion.
Here’s what Wall Street analysts said about the earnings.
Price target: $210 (raised from $195)
"Facebook’s strong start to 2019 — across the board 1Q revenue, free cash flow, EPS, and active user beats — speaks to the strength of its engagement, ad offering, and ability to drive earnings power…even while aggressively investing to improve its platform safety/security, product offerings, and monetization," Morgan Stanley analysts wrote.
"Given we believe Stories ad unit pricing is still 20-50% lower than Newsfeed…further improved Stories monetization could bring a double-barreled benefit to ad revenue growth (i.e. impression growth and pricing/performance improvement) if FB can improve ad efficacy."
The bank’s analysts also expressed excitement about Facebook’s future products and services.
"We are particularly bullish about the Instagram commerce…as we believe Instagram’s "browsing and inspirational" behavior is suited to lead to e-commerce transactions and ad monetization."
Price target: $175 (raised from $155)
Analysts at Stifel, a Facebook bear, said the company is "working against a shift in engagement from core Facebook and the Newsfeed to Instagram and Stories."
They expect a significant rise in operating expenses as Facebook addresses platform health and security issues, resulting in "limited year-on-year EPS growth."
"The long turnaround and operational uncertainty lead us to prefer other US-based mega caps in our coverage, such as Amazon, Netflix, and Alphabet."
Price target: $220 (raised from $195)
"Despite the extraordinary volume of negative headlines over the last year, engagement across the Facebook platforms continues to grow at what appears to be very healthy rates," Keybanc’s analysts wrote.
"This appears to be supporting stability in the Facebook news feed; strong growth in the Instagram news feed; and tremendous opportunities for growth in stories formats, commerce, and video.
"We believe this combination of solid engagement and revenue growth potential suggests Facebook can sustain very healthy growth for several years," they added.
The analysts also said the company "appears to be through the largest period of incremental spend related to health and security issues," raising the prospect of a return to its historical profit margins in the coming years.
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