Never lacking a story to tell, 2020 has provided more anecdotes for the Facebook (FB) scrapbook. The latest concerns the company’s muted response to hate speech and disinformation on its platform which has resulted in an ad boycott by more than 400 companies.
Sentiment aside, the impact of the boycott on the balance sheet is still unknown and won’t be factored into Facebook’s 2Q20 earnings. The social media giant is scheduled to report the quarterly numbers on July 29 after market close.
Ahead of the print, Credit Suisse analyst Stephen Ju has been contemplating the consequences of the coronavirus.
COVID-19’s impact on ad spend has been the focal point during the quarter, and updated checks for 2Q20 suggest that auto, pharmaceuticals, consumer electronics, financial services, and CPG (consumer packaged goods) have fared worse than the investment firm expected. On the other hand, the hit to entertainment/media, dining/QSRs (quick service restaurants), and retail budgets was not as severe as initially feared.
Additional feedback from advertisers suggests that following improving trends in April and May, US ad budgets tightened up in June amid the social unrest and the “understandable desire among some marketers to delay campaigns and reexamine messaging.”
“Overall,” Ju said, “As we take stock of industry budget movements, we have left our near-term estimates essentially unchanged for now. And on the move for some marketers to pull spend, we note that in the midst of its previously-announced 8mm advertiser tally, investors are unlikely to see a material impact on revenue, particularly as ad inventory is sold on an auction.”
Ju also maintains the Street is underestimating the “long-term monetization potential of other billion-user properties like Messenger and WhatsApp,” and the potential of innovative new products such as Facebook Shops to drive “better than-expected ad revenue growth.”
Ju is clearly confident because in addition to reiterating an Outperform rating, he increased his Facebook price target from $258 to $305. Investors could be taking home a 27% gain, should the target be met over the next 12 months. (To watch Ju’s track record, click here)
Most of Wall Street concurs. Among the 34 analysts to have posted a review of Facebook’s prospects, 29 say Buy while 5 recommend to Hold. With the average price target set at $258.78, the analysts are forecasting upside of 8% in the year ahead. (See Facebook stock analysis on TipRanks)
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