Cowen Sees Potential Upside for Facebook (FB) Ahead of Q3 Results

Cowen and Company affirms Facebook (Nasdaq: FB) at Outperform with a price target of $90 heading into the social media giant's Q3 report, which is expected out after markets close October 28th.

Analyst John Blackledge is looking for revenue of $3.1 billion with adjusted EPS of $0.40. The analyst noted, We forecast $2.9BN in total ad revenue, up 61% y/y (vs. 67% y/y growth in 2Q14) and up 8% q/q (vs. 12% q/q growth in 3Q13). We forecast mobile advertising revenue of $1.9BN vs. $0.9BN in 3Q13 or 64% of total adv revenue and up 12.5% q/q driven by rising users, engagement, advertisers and high ROI. We forecast desktop adv revenue of $1.0BN, up 1% q/q, somewhat offsetting high mobile ad revenue growth. We estimate $2.0BN in EBITDA, up 62% y/y and 1% above consensus,implying 65% EBITDA margin vs. 62.5% last year.

Key focus areas for investors:

1) FB User Update: which we expect will remain strong despite massive scale, we forecast 1.36BN MAU's, up 14% y/y and +41MM q/q and 1.1BN Mobile MAU's, up 26% y/y;

2) FB Engagement: We forecast flat DAU/MAU ratio of 63% vs. 2Q14 with MAU growth implying higher number of daily users;

3) Instagram Update: Ad monetization update and we could get an updated MAU count from the 200MM MAUs reported 3/26/14, for example 250MM MAUs would imply ~230K MAU adds/day, near the ~250K MAU adds/day (from 150MM to 200MM MAUs);

4) FB Video Ads: Update on auto-play ads and video usage;

5) Atlas / FAN / Ad Tech Update; and

6) M&A: Details on recent acquisitions, WhatsApp , Oculus VR, Live Rail.

Blackledge also sees upside for Facebook with Q3 results:

1) 4Q14 and 2015 catalysts, rising mobile and video advertising, Instagram monetization and Atlas/ FAN;

2) We think there is growing acceptance that video advertising is at a tipping point between TV and Digital, consistent with our 2014 Advertising Outlook, and FB is well-positioned to capitalize on the transition; and

3) 3Q14 US mobile user/engagement comScore numbers for FB and Instagram have been positive through most of 3Q.

For an analyst ratings summary and ratings history on Facebook click here. For more ratings news on Facebook click here.

Facebook closed at $80.67 yesterday.

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