Andreas
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Andreas in Insider trading,

Investment idea - ​Facebook

I am upbeat about the shares of Facebook (FB), the world’s largest social network. The company continues to deliver double-digit revenue growth and network monetization. According to the financial report for 3Q15, revenue was up 40.5% y-o-y to USD 4.50 bn, while analysts expected USD 4.37 bn. Taking into account devaluation effects, revenue increased 51% y-o-y. Advertising became a revenue growth driver, with the top line surging 45% to USD 4.3 bn due to a growing audience, a larger number of advertisers and investment in new products. The share of revenues from mobile advertising climbed 68% y-o-y to 78% of total revenue. Adjusted operating profit rose 32.4% y-o-y to USD 2.41 bn, while operating margin fell by 3.3 pps to 53.5%. Adjusted EPS increased 32.6% y-o-y to 57 cents, outpacing the median forecast by 9.6%. The number of monthly active users (MAUs) amounted to 1.55 bn by end September 2015, or 14% more than a year ago, while the number of daily active users (DAUs) rose 17% y-o-y to 1.01 bn. The company’s mobile audience expanded at a significantly faster rate. The number of monthly active users visiting the network from mobile devices increased by 23% y-o-y to 1.39 mn, while the number of daily active users rose 27% y-o-y to USD 894 mn.

Facebook generates a significant cash flow and continues to accumulate funds on its accounts. The company had USD 15.83 bn in funds and short-term investments on accounts by late September vs. USD 14.1 bn in the previous quarter. The company generated an operating cash flow worth USD 2.19 bn vs. USD 1.25 bn a year ago.

Facebook is aggressively monetizing its network. In September, the company announced its intention to focus on monetization of photos and video content on Instagram. Facebook also plans to actively distribute advertising in other companys’ products, such as Facebook Messenger and WhatsApp. Facebook Messenger has 900 mn subscribers, while WhatsApp has 700 mn subscribers to date. I believe that the company will continue to expand and successfully monetize its subscriber base. I raised my target price of Facebook shares to USD 110 and reiterate a Buy recommendation in the mid-term. The short-term technical target is USD 105.