Flat advertising revenue trends in April were good enough for Facebook Inc. investors as the social-media giant posted its first-quarter results and discussed the impact of COVID-19 on its business.
Facebook’s
FB,
Wednesday results confirmed to some analysts that the company is in a better position than its peers to ride out the downturn.
“Facebook followed up Alphabet’s
GOOG,
GOOGL,
strong result last night with arguably an even more impressive earnings report this evening,” Evercore ISI’s Kevin Rippey wrote. While the company’s April ad revenue has been flat on a year-over-year basis, some had expected low-double-digit declines, he said, but Facebook showed that there’s resilient demand for e-commerce advertising, which can help outweigh broader macroeconomic slowdown.
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“The key takeaway from tonight’s result is the relative defensibility of FB’s revenue growth even amidst unprecedented macro headwinds,” he concluded. Rippey rates the stock at outperform with a $280 target price.
Bernstein’s Mark Shmulik said that Facebook “delivered where it counted most – keeping revenue growth in the black.” He was encouraged by the company’s talk of direct-response advertising, which he thinks is more defensive than brand marketing and gives Facebook a “higher floor” relative to its peers.
“As businesses tighten ad budgets, direct response dollars on Facebook persist given the superior targeting and attribution capabilities for companies looking to drive digital conversions,” he wrote. Shmulik estimates that more than 70% of Facebook’s advertising base comes from direct response. He has an outperform rating on the stock and raised his price target to $235 from $215.
The numbers came in “far better…than anybody anticipated,” wrote Pivotal Research analyst Michael Levine, who upgraded the stock to hold from sell and boosted his price target to $225 from $167.
“We are hearing about record spending levels and [return given captive audiences no offline shopping opportunities,” Levine wrote. “Effectively, weakness in travel, automotive and we suspect in many non-digital native [small- and meduim-sized businesses] is being absorbed by these cohorts taking absorbing extra available inventory.”
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Still, while the company’s flat results in recent weeks served as a positive surprise, some still had long-term questions. Wedbush’s Michael Pachter said it was too soon to know the timeline for an economic recovery, writing that “in the meantime we think it is prudent to model Facebook’s revenues to be roughly flat year-over-year for the next two quarters, with a modest rebound in Q4 and a full recovery in 2021.”
He has an outperform rating on Facebook’s stock and a $250 target price.
While the forward ad trajectory remains unknown, Monness, Crespi, Hardt, and Co. analyst Brian White said that Facebook may be able to use the crisis to solidify its position as a hub for information, communications, and advertising.
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“Although we expect Facebook to struggle with weak digital ad spending this year, we believe the company will emerge from this downturn stronger,” wrote White, who rates the stock a buy with a $230 price target. “Longer term, we believe more people will become entrenched in the Facebook platform and society at large will shift toward more virtual interaction, including consumers, businesses and other organizations,” White said.
At least 20 analysts boosted their price targets on Facebook after the report, according to FactSet. Of the 50 analysts tracked by FactSet who cover Facebook, 42 rate the stock a buy, six rate it a hold, and two rate it a sell, with an average price target of $233.23.
Shares have dropped 7.3% in the past three months as the S&P 500
SPX,
has declined 10%.