- The latest Facebook advertising benchmark report from Nanigans highlights strong growth in Facebook's ad metrics.
- Wall Street is increasingly bullish on Facebook stock with more analysts reiterating their bullish outlook on the stock.
- The strong core metrics along with rising bullishness should drive Facebook stock higher.
Facebook (NSDQ:FB) stock has been on a wild run in 2016, having gained 25%+ in the year-to-date. Facebook has been the best performer among the FANG stocks (a term coined by Jim Cramer for Facebook, Amazon (NSDQ:AMZN), Netflix (NSDQ:NFLX) and Alphabet (NSDQ:GOOGL)) in 2016, and not without reason. The company has grown its TTM (Trailing Twelve Months) revenue by 51% YoY, while the EPS has expanded by a huge 112% YoY over the same period. The ascent in Facebook stock price has also been aided by positive commentary from Wall Street analysts. Analysts at Credit Suisse (NYSE:CS) and Goldman Sachs (NYSE:GS) were the latest to provide positive commentary and aggressive price targets. Can Facebook stock continue its rise and outgrow its seemingly steep valuations? Well, it all boils down to the question whether or not Facebook can maintain its tremendous growth rate. Can it?
Wall Street Is Increasingly Bullish On Facebook Stock
Wall Street is increasingly bullish on the Facebook stock. Analysts' consensus target price for Facebook stock is currently $156.76, up from $144.3 in July 2016. The consensus target price implies an upside of 18.7% from the last closing price. The latest notes to reiterate this stance came from analysts at Credit Suisse and Goldman Sachs. In a recent note to investors, Credit Suisse Analyst Stephen Ju raised his Facebook stock target price to $170, up from the prior target of $154 citing vastly superior ROI advertisers realize on Facebook. The analyst expects ad price on Facebook to rise as ad load growth slows down, stating:
As the consistent feedback from advertisers has been that ROI on Facebook is vastly superior versus other sources of display inventory, the move to limit ad load growth will serve to drive price appreciation so long as the gap in ROI between Facebook and alternative platforms remains healthy. In other words, we view this move as a step to capture a greater share of the marginal economics.
In a separate news. Goldman Sachs analyst Heather Bellini reiterated her 'Buy' rating on Facebook stock with a $162 price target. The analyst claimed that channel checks indicated that advertisers continued to increase their ad spen on Facebook at a good rate. As per Barrons, the Goldman analyst wrote:
“One check that sees $600mn+ in ad spend said that ‘same advertiser’ spend was up over 60% year-over-year. Partners said momentum in the ecommerce vertical has continued throughout the year and that they expect another strong holiday season.”
Bellini expects Facebook to report a revenue beat with $6.85 billion in Q3 revenues, which compares to a consensus of $6.72 billion on the street.
Facebook core metrics point to Continued growth
Click Through Rates (CTR), Cost Per Click (CPC) and Cost Per Mille (CPM) are some of the core metrics which underly Facebook's strong growth. These are essentially the metrics which drive Facebook's top line. How? Well, a higher CTR indicates a higher proportion of people clicking on Facebook ads, equating to more number of paid ad clicks for Facebook, which leads to higher ad revenue. CTRs also indicate the ability of an ad platform to target its ads. Hence, a higher CTR could also help to bid up the ad prices, which will lead to an increase in the CPC and CPM metrics, which again drive ad revenue higher. With this backdrop, it becomes extremely clear why these metrics are important to Facebook investors. Therefore, the trends in these core operating metrics are central to Facebook stock discussions.
The latest Facebook advertising benchmark report from Nanigans, an ad technology firm offering solutions to advertisers, offers a peek into the core metrics performance discussed above. The important takeaways from the latest Nanigans report are summarized below:
- Return on Ad spend grew by 26% YoY driving a 249% YoY increase in average ad spend by the 20 highest spending e-commerce and gaming clients of Nanigans.
- Global CTRs rose 74% YoY and 41% sequentially, coming in at 1.66% during Q3, the largest quarterly increase in 2 years.
- Global CPMs rose 15% YoY to $5.94 while CPCs declined 33% YoY to $0.36.
The slowdown in CPC growth and CPMs was attributed to the expansion of the Facebook audience network to include non-Facebook users, which generated lower ad rates compared to native Facebook ads and also the continued shift to mobile versus PC. The declines in the CPCs and CPMs will be more than offset by the growth in impressions, which have been growing at 40%+ rates over the last few quarters. The impressions growth should also benefit from a whole quarter of the expanded facebook audience network, which could significantly alter the number of impressions. Hence, Facebook should be able to leverage its impressions growth to continue driving its strong top line performance.
Facebook stock has been on a tear through 2016, beating the broader markets as well as other fast-growing tech peers. With Wall Street increasingly bullish on the stock and operating metrics continuing to grow, the Facebook growth story remains intact. Facebook stock is a solid buy for the long term, given that the strength in its earnings should continue into the foreseeable future.
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