JMP Raises Its Price Target On 'Top Pick' Facebook Shares

JMP reiterated its Market Outperform rating and raised price target on Facebook Inc (NASDAQ: FB) after the social media giant's blowout quarter silenced its critics who were opining that rising competition was stagnating user growth and monetization.

Facebook's second-quarter EPS/revenue of $0.97/$6.44 billion was higher than the consensus estimate of $0.82/$6.02 billion.

JMP increased its price target to $165 from $147. Based on July 27 close, the revised target implies a potential upside of 34 percent.

Justification

"Newer ad formats, such as Dynamic Ads, Lead Ads, and Canvas ads led to increased advertiser demand in 2Q and we believe FB is expanding the broader online advertising market as advertisers increasingly turn to the platform given its reach, targeting capabilities, and ROI," analyst Ronald Josey wrote in a note.

Management highlighted strong engagement across teens and Millennials, with mobile DAUs crossing 1 billion with time spent across Facebook's main platform, Facebook Messenger and Instagram all growing double-digits year-over-year in the quarter.

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For 2016, Josey's revenue projection increases by about 4 percent to $27.4 billion (+53 percent year-over-year), PF EPS estimate rises to $3.96 from $3.65.

Commenting on the management's statement that "ad load growth would be less of a factor for advertising growth beginning in mid-2017," the analyst said, "This is more focused on core Facebook as Instagram's ad load is still relatively low and with DAU and time-spent growth remaining strong, impressions growth should continue."

Facebook remains JMP's top pick across the Internet sector, with multiple catalysts in the near term around new ad products, Instagram and video and longer term based on Messenger, WhatsApp, and Oculus.

At time of writing, shares of Facebook had risen 1.32 percent on the day to $124.97.

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