Facebook: Rebounding Ad Market Signals a Strong Q3, Says 5-Star Analyst

Earnings season is in full swing, and will reach a peak of sorts on Thursday, when all FAANG stocks (except Netflix) report Q3 results.

Ahead of the battle of the mega-caps, Stifel analyst John Egbert expects Facebook (FB) to beat the estimates.

The 5-star analyst expects total revenue to increase by 14% year-over-year to $20.16 billion, ahead of FactSet’s reported consensus of $19.76 billion. The figure also represents a “slight acceleration” on the previous quarter’s 11% COVID-impacted growth. Egbert also expects 3Q GAAP EPS of $2.04 to beat the Street’s call for $1.89.

Whilst the year’s first half was characterized by a slash to ad budgets due the pandemic’s impact on the economy, Q3 data indicates ad spend is on the rise. Despite a ban on Facebook advertising by many leading brands in July, according to data from Gupta Media, ad demand “appears to have rebounded with y/y growth in ad pricing turning positive by the end of September.”

Furthermore, according to ad agency Kenshoo’s clients’ data, Facebook ad revenue growth is showing signs of acceleration. Up by 9% year-over-year in July to 15% in August and 22% in September.

Overall, Kenshoo expects Facebook ad revenue to increase by 16% year-over-year and 11% quarter-over-quarter, ahead of Egbert’s updated expectations for 14% year-over-year and 8% quarter-over-quarter ad revenue growth.  

What’s more, Egbert argues, Snap’s sizeable earnings beat last week bodes well for Facebook, too.

“Snap's ad revenue rose from roughly +32% y/y in July to over 60% y/y in August / September. We believe the majority of this revenue was incremental vs. spend shifted from Facebook amid boycotts, which appears to be another supporting data point for Facebook in 3Q:20... Based on strong indications of an ad market rebound, we are raising our y/y revenue growth forecasts for Facebook by 2-3% over the next few quarters,” the analyst wrote.

As a result, Egbert raised his price target on FB from $290 to $320, while keeping his Buy rating intact. Investors can expect upside of 15.5%, should the target be met over the next 12 months. (To watch Egbert’s track record, click here)

Turning now to the rest of the Street, where Facebook receives mostly Buys from Egbert’s colleagues – 32, as it happens. An additional 3 Holds and 1 Sell can’t detract from a Strong Buy consensus rating. Given the $302.50 average price target, the analysts expect shares to rise by 9% from current levels. (See FB stock analysis on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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