In the midst of a global pandemic, some of the world’s largest advertisers have said they will boycott Facebook Inc., which makes almost all of its money from online ads.
It would be reasonable to think that it leads to difficult times for Facebook’s business and stock. But that’s not what happened after the social media company reported second-quarter earnings on Thursday afternoon, as Facebook shares instead jumped to record highs on Friday after analysts reported optimistic takeaways from the report.
“Apparently, everything is great!” Wrote Bernstein analyst Mark Shmulik.
Shmulik tried to explain the gravity of the situation, and the incongruous response in Facebook’s FB,
performance, by analogy.
“Imagine 1000+ customers giving up their subscriptions, you can’t sell half of your product in a big market or on a certain device, you know users will spend less time in your store and the uncertainty of a global pandemic , ”wrote the analyst while maintaining a rating of the best and $ 285 target price. “And yet Facebook is seeing 10% [year-over-year, quarter-to-date] growth, and guidance to maintain this level for Q3. “
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ISI Evercore analysts described the results as “spectacular” and “stunning in light of the macro background.”
“While the growth content in 2Q does not appear uneven, at its highest level, 2Q growth rates are likely to have approached 20% YoY,” analysts wrote, while maintaining the highest level of $ 300 and the price target. “Even taking into account the company’s typical cautious outlook, road models will move materially higher”
More than 20 analysts moved their price targets on Facebook’s stock as a result of a gain, according to FactSet tabs, as shares rose 8.2% to a record close of $ 253.67 on Friday. The changes forced analysts ’average price target above $ 30 on Friday, to $ 275.78 from $ 244.35.
Facebook’s revelation that advertising revenue was steadily growing at around 10% in July, the month that advertisers were targeted for a broad boycott, seemed to be the biggest reason analysts have expressed little concern about the #StopHateForProfit approach by large advertisers. Few believed that advertisers would stay away for long, as Facebook CEO Mark Zuckerberg said.
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“We believe it [the boycott] it’s a short-term issue as Facebook has a strong track record of resolving ad concerns over the past two years, ”Mizuho analysts wrote while maintaining the buy rating and raising their price target for $ 285 from $ 270.
Morgan Stanley analysts were slightly concerned that the growth rate was lower than expected, and although they also believe the boycott will not last too long, they are concerned about an eventual effect on shares.
“Revenue growth of 10% in July (and 10% expected in the quarter) is a noticeable step down from our estimated growth of ~ 15% Y / Y in June. In our mind, this x ‘likely due to greater-than-expected short-term impact than boycott and lower engagement on Facebook as engagement is failing to rise in shelter levels,’ analysts wrote, while maintaining an overweight rating and raise their price target to $ 285 from $ 270. “While this is only a short-term issue (and we expect advertisers to boycott eventually come back), this flattening recovery slope coupled with ‘IDFA uncertainty in 4Q could put tactical pressure on shares.’
Meanwhile, Facebook has managed to continue to grow due to a jump in advertising from small e-commerce and video game companies, analysts noted. In other words, all those ads that users are seeing for masks and mobile games are paying for Facebook.
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RBC Capital Markets analyst Mark Mahaney credited “opportunistic advertisers on gambling and e-commerce [taking] advantage of the annoying prices, ”and wrote that while“ online advertising has been negatively affected by COVID, … Facebook has proven to be the most net advertiser ”.”
While many analysts have increased their price targets and financial estimates for Facebook, there have been no major changes in ratings, most likely because many analysts already consider the stock a buy. Out of 47 analysts covering Facebook who are monitored by FactSet, 39 consider the stock as the equivalent of a purchase, while six label it as a hold and only two value the stock as a sale.