Facebook (FB) Due For Strong Mobile Revenue in 3Q: Goldman Analysis

NEW YORK (TheStreet) -- Ahead of reporting third-quarter results at month's end, Facebook  (FB) has been given a boost on reaffirmed support from Goldman analyst Heather Bellini. In a research note released on Thursday, Bellini said there could be upside to mobile advertising consensus of $791 million, a 20% quarter-on-quarter growth, for the third quarter.

"With the majority of our contacts reporting significant quarter-on-quarter growth in mobile spend and larger budget share for mobile, we see upside risk to both our mobile estimate and consensus," Bellini wrote.

Goldman reiterates its "buy" rating with a price target of $58, encouraged by "powerful new product cycles relating to video ads, Instagram and even graph search".

The social network gained 2.1% to $52.21 by market close, then added a further 0.88% in after-hours trading. Facebook shares are up 96.1% this year, easily outpacing the S&P 500 which has added 21.51%.

Facebook will report third-quarter earnings on Oct. 30. Analysts surveyed by Thomson Reuters anticipate net income of $454.54 million on revenue of $1.9 billion.

TheStreet Ratings team rates Facebook as a Hold with a ratings score of C-. The team has this to say about its recommendation:

"We rate Facebook Inc (FB) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and impressive record of earnings per share growth. However, as a counter to these strengths, we find that the company's return on equity has been disappointing."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • FB's very impressive revenue growth greatly exceeded the industry average of 22.7%. Since the same quarter one year prior, revenues leaped by 53.1%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Although FB's debt-to-equity ratio of 0.18 is very low, it is currently higher than that of the industry average. Along with this, the company maintains a quick ratio of 10.22, which clearly demonstrates the ability to cover short-term cash needs.
  • The gross profit margin for Facebook Inc is currently very high, coming in at 87.04%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 18.36% trails the industry average.
  • Powered by its strong earnings growth of 285.71% and other important driving factors, this stock has surged by 149.74% over the past year, outperforming the rise in the S&P 500 Index during the same period. Setting our sights on the months ahead, however, we feel that the stock's sharp appreciation over the last year has driven it to a price level which is now relatively expensive compared to the rest of its industry. The implication is that its reduced upside potential is not good enough to warrant further investment at this time.
  • When compared to other companies in the Internet Software & Services industry and the overall market, Facebook Inc's return on equity is below that of both the industry average and the S&P 500.

Written by Keris Alison Lahiff.

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