Facebook Inc. (FB) shares got a boost on Wednesday after the social media giant posted its most recent quarterly earnings report. A generally upbeat response to the results on the Street comes as a breath of fresh air for the Silicon Valley tech titan, which has struggled with a series of scandals in 2018, leading to fears about heightened regulation.
Street Bullish on Monetization Trends, Messenger, and WhatsApp Growth
Facebook posted Q3 2018 earnings that significantly exceeded the Street's expectations. While revenue growth at 33% over the year ago period came in below targets, Zuckerberg reported on Facebook's earnings call that messaging services WhatsApp and Messenger, along with its Facebook Stories platform, have the potential for further monetization. Meanwhile, U.S. daily active users remained flat quarter-over-quarter, relieving fears of a domestic user exodus following recent data privacy issues.
At large, analysts are pleased with results that came in just above low expectations, buying into Facebook's narrative regarding a wider generational shift from the NewsFeed to platforms like Instagram and Messenger, as outlined by CNBC.
"Monetization of core Facebook and Instagram assets still has material upside potential and Messenger and WhatsApp are beginning early stages of monetization," wrote RBC Capital Markets analyst Mark Mahaney. "Even under pressure, Facebook's producing impressive growth." Mahaney reiterated his "outperform" rating on the social media leader, naming the company "the best risk-reward in large-cap internet."
JPMorgan, which rates Facebook stock at "outperform," wrote that the firm is "more positive on Facebook coming out of Q3" and are again adding it to the J.P. Morgan US Equity Analyst Focus List as a value pick. The bank noted that Wall Street is underestimating the "stickiness" of Facebook's over 2 billion users, and that the company is successfully adapting to and shaping user behavior.
Citi analysts, who rate Facebook at buy, lowered their price target to $175 from $185, noting that 2019 could still be a transition year as "revenue growth headwinds from Stories transition and more saturated developed markets combine with expense growth that may not peak until 2019."
Morgan Stanley analysts also mentioned the short-term monetization headwinds of moving towards Stories, messaging, video, and Instagram Explore, which are all lower-monetizing interactions. "Stories monetizing at an estimated approximate 30 percent lower rate than News Feed, messaging/video monetization still de minimis and Instagram Explore still without any ads," wrote Morgan Stanley.
UBS maintains its position on the sidelines with a "neutral" rating on Facebook stock, referring to the social media giant as a "business in transition," as the investment firm looks to "industry/fundamental work to gain greater clarity on the topline and user/engagement transition at Facebook."
Goldman Sachs doubled down on its "buy" rating and set a 12-month price target on Facebook stock at $205, implying a 33% upside from current levels. The company outlines the risks that accompany this projection, however, due to "worsening macro, user fatigue, and impact from privacy concerns/GDPR."
Shares of Facebook are up 5.6% on Wednesday morning at $154.47, reflecting a 12.5% loss YTD, underperforming the tech-heavy Nasdaq Composite Index's 6.1% increase and the broader S&P 500's 2% return over the same period.