Facebook Inc. is set to release its second quarter (Q2 205) results after the market close today and the bullish sentiment on the stock is rising. As at 8:43AM EDT, the stock has gained some 0.52% to $95.97 in pre-market trading activity. Shares of Facebook have had a decent run in the last year as bullish views on the stock continues to drown out bearish voices.
In the last one year, the stock has gained 28.30% in its trading price. Much of those gains were recorded in the year-to-date period when the stock has gained 23.20%. It has climbed by 19.14% in the last 3 months, and it has gained 9.21% in the last one month.
Key Reason Behind Bullish Thesis
Facebook escaped being lynched in Q1 because its earnings was better in comparison to how other tech firms fared. For instance, the firm missed EPS expectations in two out of the last four quarters and it has missed estimates in 6 out of the last 12 quarters since it became a publicly traded firm.
The key reason behind the strong bullish trend in Facebook is the optimistic outlook in the market as analysts post generous figures for the stock. The consensus estimate is that Facebook will report earnings of $0.47 per share compared to earnings of $0.42 per share from the comp quarter of 2014. Analysts expect the firm to deliver revenue of $4B up from $2.9B in Q2 2014.
Analysts Weigh in With Optimism
Neil Doshi of Mizuho Securities USA yesterday on CNBC’s Fast Money opined that Facebook has the potential to climb above a $100 trading price to new highs. He has a $104 price target on the stock as the firm shows a remarkable increase in ad revenue. In his words, “total revenue should be about $3.7 billion, but ad revenue for mobile should be about $2.8 billion”.
Cantor Fitzgerald analyst Youssef Squali and his team also have positive views on Facebook’s prospect. The analysts maintained their buy rating on the stock as they pushed a $100 price target. They also expect a significant growth 41% growth in ad revenue for a revenue estimate of $3.8 billion.
Aaron Kessler an analyst at Raymond James and his team all think that Facebook will wow the market today. They maintained their “Outperform” rating on the stock and they have raised their price target to $110 per share. They project a 40% increase in ad revenue to $3.74 billion. The Raymond James analysts are also expecting a sharp 67% increase in mobile ad revenue to about $2.77 billion.
Advertisers Are King
From the foregoing, it is obvious that analysts are paying attention to Facebook ad revenues. Facebook understands the importance of ad revenues and the firm is dancing to the tune of ad agencies by allowing them to buy ads using Gross Rating Points (GRPs).
Business Insider reports that Facebook has stopped the sole use of confusing modern metrics such as CTR, CPM, and CPV. Instead, the firm now offers the more traditional and “simpler” metric of GRPs. GRP is a way for ad agencies “to measure the reach and frequency of an ad campaign among an advertiser’s target audience” as opposed to paying for ads irrespective of whether they were shown to the target audience or not.
This new feature should bring in more marketers to Facebook and encourage them to start spending more of their ad dollars there. In the long term, analysts and investors will be happy because this move should generate more ad revenues.