Wall Street To Facebook: We Are Ready To Eat Crow

All those snide remarks and snarls about Facebook may be history, at least for awhile.

Shares FB +1.43% looked set for a blockbuster day on Thursday after jaw-dropping results from the social media group that has had investors on a tense wait ahead of the results.

Revenue for the group came in at $1.81 billion for the second quarter, against expectations of $1.62 billion by Wall Street. And mobile ads, a particular fret point for those investors, made up 41% of total ad revenue from 30% the prior quarter. Shares weren’t expected to have a shabby day on Thursday either. Read how mobile paid off big

Urging shares on were some mea culpas out for the social media group. In a note that published late Wednesday, analyst Richard Greenfield of BTIG says “We were wrong,” upgrading shares to neutral from sell and removing a $22 price target. His expectations for the new few years got a hefty makeover:

2013 ad revs of $6.4 bn (was $5.5 bn), total revs of $7.4 bn (was $6.4 bn), adjusted EBITDA of $4.1 bn (was $3.2 bn) and EPS of $0.72 (was $0.50).

2014 ad revs of $8.2 bn (was $6.5 bn), total revs of $9.3 bn (was $7.4 bn), adjusted EBITDA of $5.0 bn (was $3.6 bn) and EPS of $0.88 (was $0.52).

2015 ad revs of $9.7 bn (was $7.2 bn), total revs of $10.9 bn (was $8.2 bn), adjusted EBITDA of $5.9 bn (was $3.9 bn) and EPS of $1.06 (was $0.55).

And here’s how Greenfield said how they misjudged the social networker:

“Our short thesis on Facebook has centered on the tension we saw between user experience and revenue generation as usage of Facebook shifted to mobile.  We expected this challenge to be exacerbated by a splintering of social networking/communication apps by use-case and generations, as well as an increasingly aggressive threat to Facebook’s control of online identity/login by Google.  While we still believe these will ultimately be problems for Facebook, the magnitude of Facebook’s Q2 revenue and earnings “beat” dramatically increases our expectations for 2013-2015.”

Based on after-hour’s trading, he says Facebook is trading at an adjusted EV/EBITDA multiple of 16x, 13x and 11x his revised 2013, 2014 and 2015 estimates respectively, not low multiples, but not anywhere “near as expensive as we had been modeling previously.”

Cantor Fitzgerald’s equity team increased its price target on Facebook $5 to $40 per share.

“Most impressive about the quarter was 1) re-acceleration in Y/Y ad revenue growth to 61%, driven by both volume and price; 2) user engagement continues to grow, even among younger audiences; and 3) higher revenue growth translated into higher margins and better EPS.”

Jeff Reeves, editor of InvestorPlace.com wrote late Wednesday as well that he also was “dead wrong” to pan Facebook as a “bad investment because growth is very difficult to come by” back in June. Tucking in the napkin, Reeves says he’s ready to “eat a whole plateful of crow.”

Source : Marketwatch