Facebook Color on Quarter
- Stifel reiterates $195 tgt, reiterates Hold. Firm notes that they feel like they would need advanced degrees in human psychology and epistemology to fully understand the current situation at Facebook. The financial results on the surface were strong, with reported revenue up by 47% y/y and ahead of expectations. Below the surface, time spent is declining and Facebook is suggesting that the reduction is by design, but how do they really know this is true? In fact, U.S. and Canada DAUs were down for the first time since Facebook began reporting the metric. U.S. and Canada MAUs were flat. U.S and Canada engagement (DAU/MAU) declined by 42bps q/q. Overall engagement was down by 30bps q/q. So what is the truth? They think the right answer may be somewhere between the Facebook management "it's all by design" narrative and the counter thesis of core Facebook fatigue. There is good here, there is bad here -- we are on the sidelines.
- Needham reiterates $215 tgt, reiterates Buy. Firm notes that FB over-delivered financial metrics, reporting 4Q17 revenue of $13.0B (up 47% y/y and 5% above their estimate) and EPS of $2.21 (excludes 1x taxes), up 83% y/y and 18% above their estimate. 89% of 4Q17 revenue came from mobile. FB's CEO focused on Facebook.com's pivot toward "creating more meaningful interactions," with a goal of improving "societal happiness and wellness." He attributed 5% lower time spent in 4Q17 to newsfeed changes. FB remains our top pick in 2018 because: 1) as "meaningful interactions" replace "passive viewing" the attention paid to ads (ie, conversion rates) should rise, adding to FB's pricing power; 2) time spent should rise if FB's goals are met; 3) regulation risk falls in an election year as fake news declines; 4) auction prices are set by demand, so CPMs rise faster than ad units fall.
Shares of Facebook are trading up 2.2% at $190.96/share in pre-market trade