Facebook sees higher Q4 ad growth rate, driven by holiday demand
Facebook (FB) is scheduled to report results of its fourth fiscal quarter after market close on Wednesday, January 27 with a conference call scheduled for 5 pm ET. What to watch for:
1. AD GROWTH RATE SEEN HIGHER IN Q4: Last quarter, Facebook reported earnings of $2.71 per share, beating consensus at that time of $1.91, on revenue of $21.47B that topped the $19.82B consensus forecast. The company said at that time that it expected its fourth quarter 2020 year-over-year ad revenue growth rate to be "higher than our reported third quarter 2020 rate, driven by continued strong advertiser demand during the holiday season." Additionally, Oculus Quest 2 orders "have been strong which should benefit Other Revenue," Facebook stated.
Current consensus EPS and revenue forecasts for Facebook's December quarter stand at $3.22 and $26.43B, respectively, according to data provided by Refinitiv.
Recently, Deutsche Bank analyst Lloyd Walmsley raised the firm's price target on Facebook shares to $350 from $325 and kept a Buy rating on the shares, citing his belief that the company's Q4 results and outlook are "likely to be a clearing event" for Facebook shares. Walmsley, who sees management "ring-fencing" the outlook for Q1 and Q2, notes it will be the first full quarter with changes to Apple's (AAPL) advertising Identifier. The short-term impact from these changes could be slightly larger than investors appreciate, though the impact will be short-lived and likely resolved such that 2022 estimates are largely unaffected or even potentially higher, Walmsley told investors.
Meanwhile, Piper Sandler analyst Thomas Champion reiterates a Neutral rating on Facebook with a $275 price target ahead of the company's Q4 report. Revenue forecasts look reasonable given the improvement in advertising spend industrially since the Q2 trough, Champion said. He expects "strong" results but sees the stock reaction hinging more on the qualitative discussion of 2021 revenue prospects, including the pace of e-commerce growth, plus possible headwinds associated with user targeting and regulation.
2. E-COMMERCE OPPORTUNITY: In his own recent preview note, BofA analyst Justin Post said his checks suggest new shopping capabilities and the rapid shift in sales online should drive Q4 and Q1 upside for Facebook. In the medium-term, he sees initiatives with Watch content and AR/VR as positive and views Facebook as "well positioned to capture TV ad dollars" as over-the-top services cannibalize ad supported TV viewing. Longer-term, messaging monetization "remains a potentially large revenue driver" for Facebook, added Post, who has a Buy rating and $345 price target on Facebook shares.
3. TRUMP BAN: On January 7, Facebook CEO Mark Zuckerberg said in a post on the site that the "shocking events of the last 24 hours clearly demonstrate that President Donald Trump intends to use his remaining time in office to undermine the peaceful and lawful transition of power to his elected successor, Joe Biden. His decision to use his platform to condone rather than condemn the actions of his supporters at the Capitol building has rightly disturbed people in the US and around the world. We removed these statements yesterday because we judged that their effect -- and likely their intent -- would be to provoke further violence... Over the last several years, we have allowed President Trump to use our platform consistent with our own rules, at times removing content or labeling his posts when they violate our policies. We did this because we believe that the public has a right to the broadest possible access to political speech, even controversial speech. But the current context is now fundamentally different, involving use of our platform to incite violent insurrection against a democratically elected government. We believe the risks of allowing the President to continue to use our service during this period are simply too great. Therefore, we are extending the block we have placed on his Facebook and Instagram accounts indefinitely and for at least the next two weeks until the peaceful transition of power is complete."
On January 21, Facebook announced it is referring its decision to indefinitely suspend former U.S. President Donald Trump's access to his Facebook and Instagram accounts to the independent Oversight Board. Nick Clegg, VP of Global Affairs and Communications, said in a blog post that it is an independent body and "its decisions are binding - they can't be overruled by CEO Mark Zuckerberg or anyone else at Facebook." Clegg added: "We believe our decision was necessary and right. Given its significance, we think it is important for the board to review it and reach an independent judgment on whether it should be upheld. While we await the board's decision, Mr. Trump's access will remain suspended indefinitely."
Keywords: earnings, earnings watch, OTT, e-commerce, advertising, AR, VR