Facebook Soars 6% After-Hours On Strong Beat, Ad Resilience

Shares in social media giant Facebook (FB) soared 6.5% in Thursday’s after-hours trading after the company reported better-than-hoped earning results for the second quarter.

Specifically, Q2 GAAP EPS of $1.80 beat Street estimates by $0.40 while revenue of $18.69B also topped Street expectations by $1.33B, and was up 10.7% from the same period last year. Ad revenue was also up 10% at $18.32B (vs. consensus of $16.95B)- and Facebook expects a similar strong rate of growth for the third quarter.

Meanwhile daily active users (DAU) surged to 1.79B vs. the consensus of 1.75B- and similarly monthly active users (MAU) of 2.70B easily beat the consensus of 2.63B. That’s with average revenue per user (ARPU) at $7.05, again higher than the expected forecast of $6.63.

Also of note, operating income spiked 29% to $5.96B (31.9% margin), with net income almost doubling to $5.18B thanks to a significantly lower effective tax rate.

Looking forward, FB trimmed its 2020 Opex outlook by $1B at the high end to $52–55B but said its 2020 Capex would be around $16B ($14–16B prior).

Following the report, analysts rushed to reiterate their buy calls on the stock. SunTrust Robinson analyst Youssef Squali has now ramped up his price target from $245 to $285 writing: “We remain bullish on FB and raise our PT to $285 on the back of stronger than expected 2Q20 results, positive commentary, growth stabilization in July, elevated user engagement, and a resilient ad ecosystem.”

The analyst calls Facebook’s valuation ‘compelling’ and adds “FB’s auction-based, objective-driven ad platform with the depth and breadth provided by 9M SME advertisers proved its value in 2Q20 in the face of a global pandemic and an ad boycott.”

Meanwhile RBC Capital’s Mark Mahaney took his price target all the way from $271 to $320, explaining that Facebook is one of the most resilient internet advertisers out there. “We raise our PT to $320, based on 22x ’22E GAAP EPS of $14.51 and 12x ’22E EBITDA of $69B. Our 3-yr outlook for 20–30% bottom-line growth supports these multiples” the analyst told investors on July 30.

Overall, FB scores a bullish Strong Buy Street consensus with 26 recent buy ratings vs just 3 hold ratings. Meanwhile the average analyst price target stands at $265 (13% upside potential). Shares are up 14% year-to-date. (See Facebook stock analysis on TipRanks).

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