Facebook’s 1Q Results Outperform As Ad Revenue Jumps; Shares Pop 6%

Shares of Facebook (FB) jumped 6.2% in Wednesday’s extended trading session after the social networking service company posted 1Q results that surpassed analysts’ expectations by a wide margin. Outstanding advertising revenue growth, aided by a 30% rise in the average price per ad, a 12% increase in the number of ads delivered, and margin expansion were the primary drivers for the results.

The company reported strong 1Q revenues of $26.2 billion, topping consensus estimates of $23.7 billion. The 48% year-over-year increase was fueled by a 46% rise in advertising revenue. Furthermore, Facebook’s average daily active users (DAUs) increased 8% year-over-year to come in at 1.88 billion.

Facebook reported earnings of $3.30 per share, up 93% on a year-over-year basis, and outpaced Street estimates of $2.37 per share. Operating margin expanded to 43% from 33% in the same quarter last year. (See Facebook stock analysis on TipRanks)

Facebook’s CFO Dave Wehner commented, “We expect second quarter 2021 year-over-year total revenue growth to remain stable or modestly accelerate relative to the growth rate in the first quarter of 2021 as we lap slower growth related to the pandemic during the second quarter of 2020. In the third and fourth quarters of 2021, we expect year-over-year total revenue growth rates to significantly decelerate sequentially as we lap periods of increasingly strong growth. We continue to expect increased ad targeting headwinds in 2021 from regulatory and platform changes, notably the recently-launched iOS 14.5 update, which we expect to begin having an impact in the second quarter.”

Facebook expects total expenses to be in the $70-$73 billion range in 2021, compared to prior forecasts of $68-$73 billion. Capex is estimated between $19-$21 billion, down from the previous estimation of $21-$23 billion, and driven by investments in data centers, servers, network infrastructure, and office facilities.

Oppenheimer analyst Jason Helfstein increased his price target on the stock to $375 (22.1% upside potential) from $350 and reiterated a Buy rating “as 1Q results showed impressive q/q revenue acceleration on two-year basis, removing COVID-19 comp impact.”

“Given the fragmentation of media and communication,” Helfstein believes “consumers will increasingly find media and information through their social graph, positioning FB in the middle of this information exchange.”

Consensus among analysts is a Strong Buy based on 16 Buys versus 1 Hold. The average analyst price target stands at $355.27 and implies upside potential of 15.7% to current levels. Shares have gained more than 58% over the past year.

Furthermore, TipRanks data shows that financial blogger opinions are 92% Bullish on Facebook, compared to a sector average of 66%.

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