Facebook (FB) Earnings An Absolute Blowout; Where Does Stock Go From Here?

Facebook stock

Facebook Inc. (NASDAQ:FB) on Wednesday blew the doors off analyst expectations yet again by reporting massive second-quarter 2016 profits. The results were fueled by strong growth in the company’s advertising business and global user base.

In its quarterly report, the social media behemoth said it earned $0.97 per share, 15 cents above the $0.82 per share analysts were expecting. Revenue rose 59 percent on a year-over-year [y/y] basis to $6.44 billion, above views for $6 billion. Net profit jumped 186 percent from a year ago to $2.05 billion.

In terms of monthly active users [MAUs], Facebook said it added 15% more users compared to the second-quarter of 2015 for a total of 1.71 billion MAUs, topping the 1.69 billion estimates. Ad revenue, came in at $6.24 billion, versus the $5.8 billion expected by analysts. Almost all of Facebook’s revenue came from advertising with mobile ad revenue taking the lion’s share (84 percent) at $5.42 billion, versus the $4.84 billion expected. Monthly users on mobile and daily users on mobile jumped 20 and 22 percent y/y, respectively.

CEO and founder Mark Zuckerberg called the second quarter “another good quarter,” adding “[o]ur business is growing at a healthy rate.” Zuckerberg also said that he was “particularly pleased with the progress in video” as Facebook moves “towards a world where video is at the heart of all our services.”

Following earnings release, Facebook stock spiked 6.3 percent in extended hours, briefly over $131 per share and nearly 10 points higher from the name’s all-time closing high during regular hours of $121.92.

Facebook Stock Receives Strong Burst of Enthusiasm from the Street

Facebook continues to enjoy strong support from Wall Street, as several brokerages this morning raised their ratings and price targets on the social network.

Needham issued a research report on Friday, raising their Facebook stock price target to $150 from $130, noting the company has positioned itself as the mobile ad play. Alongside Needham, Axiom Capital set a 12-month base case estimate of $160 from $155 per share, saying it believes Facebook stock is still cheap following company’s impressive quarter that exceeded estimates across the board.

Oppenheimer’s Jason Helfstein raised his price target on Facebook stock this morning to $150 from $140, noting headroom for short-term monetization as video and Instagram remains under-monetized. Piper Jaffray also raised their price target by 15 points to $185 with an ‘Overweight’ rating. Credit Suisse too raised its estimates on Facebook shares to $154 from $145, writing they believe Wall Street models continue to underestimate Facebook’s long-term monetization potential of new products. The investment bank said it sees optionality/upward bias to FB’s estimates.

Also this morning, Cantor raised their price target on Facebook to $160 from $150, saying they continue to believe that the social network giant has multiple catalysts. The firm continues to identify FB stock as a top pick.

Finally, RBC Capital Markets analysts raised their price target to $170 from $165, saying in their research note to investors they see room for Facebook stock to grow further.

“Facebook still has many growth levers left to pull, not least of which is video advertising,” the firm wrote.

Facebook Stock Trading Metrics

Facebook stock gained $3.09, or 2.50%, at $126.36, in early trading on Friday. Shares have traded near all-time intraday highs since last quarter’s earnings. In fact, Facebook’s march back to all-time highs began in early August 2013 and has been a stairstepping type climb since that time.

In the past 52 weeks, shares have traded between a low of $72.00 and a high of $128.33 with 50-day MA and 200-day MA located at $116.52 and $111.90 levels, respectively.

Facebook stock currently prints a one year return of about 30%, and a year-to-date return of around 18%.

Is FB Stock Expensive?

On valuation-measures, shares of Facebook, Inc. have a trailing-12 and forward P/E of 77.24 and 26.70, respectively. Any time you have a ticker that trades with a P/E that high, the market is telling you that it expects long-term sustainable and rapid growth. So, yes, based on these metrics Facebook stock seems expensive. That said however, for a company whose current year and next year EPS growth estimates print 57.90% and 28.30%, respectively, those P/E ratios don’t look bad at all. In fact, the equity looks rather cheap given the fact Facebook could easily earn $4.00 EPS in FY 2016 and $4.50-$5.00 per share in FY 2017.

Speaking from a technically perspective, Facebook’s stock has been building a consolidated base above the $120 level with a volatile but still healthy accelerated uptrend since early May. A move through $130 on good volume, which would suggest there’s conviction behind the move, could lead to additional breakout momentum.

FB has a median Street price target of $145 with a high target of $185.

FB chart

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