Facebook's (FB) Expense Guidance Better than Feared - Raymond James

Raymond James analyst, Aaron Kessler increased his estimates and price target on Facebook (NASDAQ: FB) after expense guidance was better than feared. 2016/2017 revenue estimates rise by 8.4%/9.5% and 2016/2017 EPS estimates increase from $3.03/$3.89 to $3.41/4.56. The price target for FB goes to $125 (~27x 2017 EPS) from $120, which implies a PEG of ~1x, with Internet companies typically trading in a range of 1-1.5x.

Facebook reported a strong 4Q marked by accelerating 66% y/y forex neutral ad revenue growth (vs. 57% in 3Q), 82% y/y mobile revenue growth, and solid engagement trends (daily average user growth of 16.5% y/y). Despite recent macro concerns in the market, Facebook noted strength across verticals, marketer segments, and geographies (including emerging markets).

There were 4 key positives about the quarter:

1) Ad Revenue increased 66% y/y forex neutral (vs. 57% in 3Q) and was 10% above our estimate driven by strength in mobile (82% y/y and now represents 80% of advertising) as well as partly due to opening up of Instagram inventory. Facebook also noted strength across all verticals, marketer segments (i.e., brand, direct response), and geographies (FB commented strength in emerging markets including from China based advertisers)

2) Ad Impressions – ad impressions increased 29% y/y (first positive growth since 3Q13), which we believe was partially helped by opening up additional inventory including Instagram and strong growth of mobile impressions

3) Strong User Growth and Engagement – Worldwide monthly active users (MAUs) of 1.59 billion grew 14% y/y and daily active users (DAUs) increased 16.5% y/y (vs. 16.5% in 3Q

4) Expense Guidance Better than Feared – Facebook expects 2016 non-GAAP expense growth of 45-55% y/y (includes Oculus, which was not in our model previously).

No change to Outperform rating but increasing PT to $125

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

Shares of Facebook closed at $94.45 yesterday.

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