'Holiday halo bodes well for advertising spend': Here's what 4 Wall Street analysts expect from Facebook's 4th-quarter earnings report

  • Facebook is set to release its fourth-quarter earnings report after the close on Wednesday, and expectations are mixed.
  • The social media platform is expected to have benefited from a strong holiday season, but beef with Apple could cloud outlook.
  • Here's what four Wall Street analysts expect to see from Facebook's fourth-quarter earnings report.
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Facebook will release its fourth-quarter earnings after the market closes on Wednesday, and analyst expectations are mixed.

Uncertainties remain on Apple's updated IDFA policy in iOS 14, which could spark a multi-billion dollar decline in Facebook's revenue, and the upcoming political environment with the White House and Congress controlled by the Democratic party.

But a strong holiday spending season likely means Facebook benefited from a surge in advertising spend, and therefore should post strong earnings results that beat analyst expectations.

According to data from Yahoo Finance, the average analyst estimate for revenue and earnings per share is $26.41 billion and $3.21, respectively.

Here's what four Wall Street analysts expect to see from Facebook's fourth-quarter earnings report.

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Stifel: 'Holiday halo bodes well for advertising spend'

The holiday season and political environment leading up to the presidential election in November should have resulted in increased demand for Facebook's advertising business, Stifel said in a Friday note.

"Positive read-throughs from ad agencies suggest an inflection in demand for digital ads drove a noticeable improvement in social ad spend during the 2020 holiday season, which should position Facebook well relative to Street expectations," Stifel said.

And third party data from ad agencies backs up the idea that Facebook "benefited meaningfully from strong holiday advertiser demand," the note said. On top of that, Facebook is facing easier comparable sales in the first half of 2021 relative to last year given the pandemic.

But the company is also facing headwinds, Stifel notes. Apple's expected rollout of Limited Ad Tracking features in iOS 14, which prevents collection of its identifier for advertisers (IDFA), could lead to a decline in Facebook's revenue.

But with millions of small businesses becoming active advertisers on Facebook's platform during the pandemic, "we see numerous tailwinds for Facebook in FY21," Stifel said.

The firm reiterated its Buy rating on the stock, giving it a $340 price target.

JPMorgan: 'Weak sentiment and attractive valuation'

Facebook remains a top pick for JPMorgan, as the social media platform should accelerate its revenue growth as it begins to monetize new products including Facebook shops and Instagram Checkout and Reels, according to a Thursday note.

While earnings should be strong in the fourth quarter, with year-over-year revenue growth jumping 26% based on the bank's estimates, investor sentiment could be the spark that moves shares higher.

"We believe Facebook likely has the worst investor sentiment among FANG names," JPMorgan said.

"We attribute Facebook's fatigue to elevated regulatory concerns, controversy around the role of platforms in recent political events, and the fact that Facebook has less overall business model diversification than Google and Amazon," JPMorgan explained. 

And with regards to negative impact to revenue from Apple's new IDFA policy, JPMorgan said investors expect just a low single digit percentage point decline.

"But we believe the company has other strong sources of data & user recognition, including API updates ready for implementation as of mid-January 2021," which would likely mitigate the risk to FaceBook, the note said.

JPMorgan reiterated its Overweight rating on Facebook, giving it a $330 price target.

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Credit Suisse: 'Raising shopping use case, going lower in marketing funnel'

Credit Suisse, which rates Facebook at Outperform with a $325 price target, lowered its earnings estimates and price target as it anticipates a slow start to 2021 for the company, according to a Friday note.

Credit Suisse believes investor expectations are too conservative and "underestimate the long-term monetization potential of other billion-user properties like Messenger and WhatsApp, optionality for faster free-cash-flow growth on greater efficiency on content screening/security costs," the note said.

The firm reiterated JPMorgan's view that checks with advertisers point to increased spend on Facebook's advertising platform during the holiday season and November election. 

Credit Suisse said the potential for better than-expected ad revenue growth on product innovation (Facebook Shops, Search in Marketplaces etc.) in the fourth quarter is likely.

Evercore ISI: 'Accept the acceleration, ignore the IDFA noise'

Evercore ISI is expecting a blow-out earnings result from Facebook, based on its decision to raise its fourth-quarter revenue estimates by 400 basis points to street-high revenue growth of 28%, according to a Thursday note.

The firm said Facebook's current valuation suggests there's "a myopic focus" on the first quarter impact of Apple's IDFA iOS update and the constant concern for anti-trust legislation.

But Evercore thinks the concern is IDFA is overblown, the note said, explaining that some worst-case scenarios call for Facebook's revenue to decline by 10%.

"Our view is that the IDFA potential impact is overstated by several hundred basis points in 1Q consensus, based on the normal seasonality vs what's stated in current street models," Evercore said.

Meanwhile, Facebook should benefit from the uptick in e-commerce demand, according to Evercore.

"Consumers avoiding physical retail, flush household balance sheets, and unequal impact of the pandemic on low-income households" drove a boom in holiday consumer spending that will benefit Facebook's fourth-quarter results.

Evercore reiterated its Outperform rating on Facebook, giving it a price target of $320.

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