Shares of Facebook fell sharply after the company reported better-than-expected earnings and mentioned regulatory headwinds on its earnings call. Several analysts advised buying the dip in the stock price.
Facebook shares fell 5.7% to $210.59 in morning trading on Thursday.
Facebook reported earnings of $2.56 per share on revenue of $21.08 billion, beating consensus estimates of EPS of $2.52 EPS and revenue of $20.88 for the fourth quarter of 2019.
CFO David Wehner said on the earnings call:
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"We expect our year-over-year total reported revenue growth rate in Q1 to decelerate by a low- to mid-single digit percentage point as compared to our Q4 growth rate. Factors driving this deceleration include the maturity of our business as well as the increasing impact from global privacy regulation and other ad targeting related headwinds. While we have experienced some modest impact from these headwinds to date, the majority of the impact lies in front of us."
Wehner then told analysts "I don't think anything has changed since Q3 in terms of our outlook on the headwinds that we have around ad signals."
Here's what analysts said:
Morgan Stanley, Overweight, $270 Price target Unchanged
"Buy on weakness. 4Q showcased broad-based engagement strength leading to higher monetization and earnings power. 1) Engagement remains strong even at FB’s oldest business (core app/messenger) with daily active users growing 34 million sequentially (reaching ~1.7 billion globally)…growing faster than expected in every region. Engagement across the family of apps remains strong too, reaching ~2.3 billion DAPs (up ~60 million sequentially).FB’s leading and growing engagement lays the foundation for continued monetization and ad growth. Bullish Signs About 2020 and long-term revenue drivers: we expect Instagram Stories monetization to be a material driver of growth in 2020 and FB talked to Stories (at WhatsApp Status) as a driver of engagement in all regions."
- Brian Nowak
JPMorgan, Overweight, $255 Price Target Unchanged
"Solid 4Q versus elevated expectations; 2020 outlook unchanged; would buy pullback. FB reported revenue growth of 25%, almost right in-line with our model and the company’s outlook as revenue growth decelerated ~400 basis points from 3Q. Beyond interoperability, FB expects its messaging platforms to become more social, w/new experiences in second half 2020. We believe payments is a major priority, with WhatsApp payments moving beyond the test phase this year, FB Pay expanding, and greater emphasis on a seamless experience in Instagram checkout. We continue to believe valuation is compelling at 19 times 2021E GAAP EPS of $10.97, with 23% upside to our $255 PT based on 23 times. FB remains a top pick."
- Doug Anmuth
Goldman Sachs, Buy, Price Target Raised From $243 to to $249
"We reiterate our Buy rating and raise our 12-month price target as we roll forward our estimates and see the company continuing to benefit from digital advertising trends and continued adoption of new ad units such as Stories. At ~$208 in the after-market, Facebook is trading at 22 times and 18 times our calendar year 2020 expected and calendar year 2021 expected EPS of $9.47 and $11.49 (prior $9.25 and 11.05)."
RBC Capital Markets, Outperform, Price Target Lowered From $270 to $255
"We call this an expectations correction – as opposed to a fundamentals correction. The beat magnitude wasn’t as great as expected or as generated historically. All in, fundamental trends were soft, with 500 basis points of ad revenue growth deceleration and 420 basis points year-over-year EBITDA margin decline. Price target reduced to $255 from $270, based on 12 times 2021E EBITDA of $55 billion. Our 3-year outlook for 20-25% bottom-line growth supports these multiples."
- Mark Mahaney
Moffett Nathanson, Buy, $220 Price Target Unchanged
"The quarter and ensuing management commentary did produce a few worrying data points that could weigh on the stock near-term. For starters, the deceleration in U.S. ad growth of over 500 basis points was worse than our estimate of 400 basis points and echoed the problematic results of 2Q 2018. International ad growth excluding foreign exchange also fell by 300 basis points in the quarter, leading to an overall 400 basis points deceleration in ad growth, nearly as sharp as the 2Q 2018 declines. As COO Sheryl Sandberg explained they are taking it “very slowly” when it comes to rolling out Instagram Checkout and monetizing WhatsApp with ads, it appears the revenue catalysts we had anticipated for 2020 are still in the works."
- Michael Nathanson