Facebook (FB) PT Lifted at Susquehanna on 'Clean' Beat

Susquehanna analyst Brian Nowak reiterated a Positive rating and boosted his price target on Facebook (NASDAQ: FB) from $69 to $72 following another "clean" beat with record incremental margins.

Highlights, according to Nowak:

• Last night, FB reported strong 1Q:14 revenue of $2.5bn, 2.5% ($60mn) above us and 6.5% ($152mn) above the Street. The beat vs. us was driven almost entirely by higher than expected ad revenue, beating our $2.3bn ad estimate by 2.5% ($56mn).
• 1Q again showcased FB's mobile leadership, as 1Q mobile ad revenue of $1.34bn beat us by $104mn (8.5%) and the Street by $116mn (9.5%). This was driven by "broad based" ad revenue growth across FB's mobile products (sponsored stories, app installs, etc.), and FB is also seeing growth in the number of advertisers using the platform. FB said they had positive momentum in all four marketer segments (direct response, SMB, app developers, and brands), and saw particular strength from advertisers in mobile gaming, e-commerce, and CPG (which is a good sign of growing brand acceptance).
• EBITDA came in 15% (or $209mn) ahead of us, as incremental EBITDA margins rose to 80%, the highest in FB history (see Figure 1). For perspective, this is higher than GOOG has ever delivered, save the recession year of 2009 (see Figure 1). GOOG's incremental margins when it had roughly this size annual revenue base were ~4,300bp lower than FB's are now. This speaks to the lower spending and investment intensity behind FB's display business...which when humming on all cylinders like this leads to material earnings power.
• The only disappointment was that FB downplayed the near-term impact from auto-play video ads and Instagram, stating they will not be "meaningful" contributors to revenue in '14. On video ads, FB intimated it wants to see non-ad video sharing and placement become more common organically on FB before meaningfully expanding their auto-play ad rollout. We believe it is prudent to not scale video ads too quickly (and potentially disrupt the user experience), are relieved to still see upside to Street numbers without video ads in our model, and look forward to updates on the timing of when video ads will be rolled out more, because by our math, we believe the higher CPM video ad units can add $1bn+ in annualized revenue.
• For the fourth straight quarter, Facebook's results also delivered the dynamic duo of revenue acceleration (72% YoY growth in 1Q:14 vs. 63% YoY growth in 4Q:13) and margin expansion (as non-GAAP EBITDA margins rose by ~1,032bp YoY). No denying this is a turbulent market, but if history is any guide, this will be good for the stock over the next few months, as over the past five years, Internet stocks delivering both metrics see multiple expansion 80% of the time (see our note, Playing for Multiple Expansion? Look Here.). At the very least, this could be a source of support near-term.
• Updating our model for the beat and faster ad growth trajectory, we are raising our '14 non-GAAP EBITDA by 4% (~$280mn). We raise our price target to $72 from $69. Maintain Positive

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 $61.36 yesterday.

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