Facebook (FB) Stock Gains Despite Missing on Q3 Revenue and Q4 Guidance, Analysts Lower PTs But Remain Positive as IDFA Headwinds Though Not as Bad as Feared

October 26, 2021 5:54 AM EDT
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Price: $308.14 -0.79%

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    51 Buy, 12 Hold, 2 Sell

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Shares of Facebook (NASDAQ: FB) are up nearly 3% in pre-open Tuesday after the company delivered mixed Q3 results.

Facebook reported Q3 EPS of $3.22 to top the analyst estimate of $3.19. Revenue for the quarter came in at $29.01 billion, lower than the consensus estimate of $29.58 billion.

"We made good progress this quarter and our community continues to grow. I'm excited about our roadmap, especially around creators, commerce, and helping to build the metaverse,” said Mark Zuckerberg, Facebook founder and CEO.

Daily active users (DAUs) came in line with the expectations at 1.93 billion, while monthly active users (MAUs) were reported at 2.91 billion, lower than the 2.93 billion consensus. The average revenue per user (ARPU) also missed on the views as it came in at $10.00 vs. $10.15 expected by analysts.

On Q4 guidance, Facebook said it is looking for revenues of between $31.5 billion to $34 billion, lower than the consensus of $34.89 billion.

Facebook stock was boosted by the announced $50 billion increase in the share repurchase program. Elsewhere, the company announced it plans to change how it reports results going forward.

“Starting with our results for the fourth quarter of 2021, we plan to break out Facebook Reality Labs, or FRL, as a separate reporting segment. Under this reporting structure, we will provide revenue and operating profit for two segments: The first segment, Family of Apps, will include Facebook, Instagram, Messenger, WhatsApp and other services. The second segment, Facebook Reality Labs, will include augmented and virtual reality related hardware, software and content. We expect our investment in Facebook Reality Labs to reduce our overall operating profit in 2021 by approximately $10 billion,” the company said in a press release.

At least 5 Street firms have lowered their price targets on Facebook post-earnings, although analysts agree that the IDFA headwinds though are not as bad as feared.

Raymond James analyst Aaron Kessler lowered the price target to $410.00 per share from the prior $450.00 on the Strong Buy-rated stock.

The analyst outlined three key reasons why he remains bullish on FB stock going forward: 1) solid long-term revenue growth still expected, 2) increasing monetization of newer platforms, 3) valuation attractive at 19x RJ’s 2022E Core GAAP EPS.

“Facebook reported 3Q results below consensus, but better than feared following last week’s commentary from SNAP on the impact of Apple’s App Tracing Transparency changes. The company expects ATT headwinds to persist, though is taking steps to mitigate half of the measurement impact by the end of the year (targeting impacts likely a longer-term fix). FB also guided to opex of $91-97B for 2022 (vs. our $88B) though we believe initial guidance could prove overly conservative. Positively, the high losses in 2021 for Facebook Reality Labs ($10B) imply operating margins for core were much higher than expected and FB plans to break out Core FB vs. FB Reality labs beginning next quarter,” Kessler said in a client note.

Mizuho’s James Lee also reiterated a Buy rating and a $450.00 per share price target as the company has partially managed to offset IDFA headwinds with investments in workaround solutions.

“Consistent with our expectations, FB is mitigating risks of Apple’s privacy changes with its established workaround solutions. As a result, both 3Q results and 4Q outlook missed Street expectations modestly by low-to-mid-single-digits. For expense, FY21 growth guidance was reduced by 2 points and FY22 expectations, at the low-end of 29% YoY (> consensus of 25%), was in line with expectations. FB plans to break out core advertising margins, which are strong at an estimated 48% OPM ex-growth investments. As FB separates itself from peers due to its early investments in IDFA/ATT, we maintain it as our Top US internet pick, and our FY23 EBITDA estimate (ex- FB Reality Labs) at $95bn,” Lee wrote in a note sent to clients.

Shares of Facebook closed at 1.26% higher yesterday at $328.69.

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