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Wells Fargo Believes Marketer Participation On Facebook Is Now Compulsory

Facebook Inc’s FB 2.55% 2Q results reflect that the company’s unparalleled audience scale, engagement, targeting, ad formats, and analytics “continue to engage new advertisers and grow FB platform share of existing budgets,” Wells Fargo’s Peter Stabler said in a report. He maintained an Outperform rating on Facebook, while raising the 12-month valuation range from $145-$150 to $155-$160.

Impressive Results

Facebook generated 63 percent ad revenue growth in the quarter, versus the Wells Fargo estimate of 52 percent. This represented the third straight quarter of over 60 percent y/y FX neutral ad growth, analyst Peter Stabler mentioned, adding that it was boosted by continued benefits from an expanding portfolio of ad formats and contribution from Instagram and the Facebook audience network.

Facebook continues to exhibit strong opex management, and reported lower-than-expected R&D expense. Gross margin also came in significantly ahead of expectations. “Consistent with prior quarters, CFO Wehner tightened the range of full year operating expenses, dropping high end of GAAP and non-GAAP expense growth by 500bps,” Stabler wrote.

The non-GAAP EPS estimates for FY16 and FY17 have been raised from $3.56 to $3.96 and from $4.68 to $5.04, respectively.
Facebook's massive user base, targeting capabilities, and social connectivity offer marketers significant opportunities. The analyst added, “In short, we view marketer participation on the FB platform as compulsory, and expect FB to be the leading share beneficiary of funds flowing to social and mobile ad platforms.”

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Jul 2016Credit SuisseMaintainsOutperform
Jul 2016Goldman SachsMaintainsBuy
Jul 2016Morgan StanleyMaintainsOverweight

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