Facebook’s Strong Advertising Revenues Fuel Blowout Quarter

Facebook reported better-than-expected 4Q results as the social media giant benefited from strong advertising revenues and an increase in its monthly and daily active users (DAUs).

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Going forward, however, Facebook (FB) warned of a moderation in advertising revenues in 2021, pushing shares down 1.9% in Wednesday’s extended trading session.

Facebook’s earnings of $3.88 per share jumped 52% year-over-year and topped the Street’s estimates of $3.22 per share. Its revenues of $28.07 billion grew 33% and exceeded analysts’ expectations of $26.44 billion. The advertising business, which contributed about 96.8% of total revenues in 4Q, increased 31% year-over-year.

The company’s MAUs (monthly active users) grew 12% year-over-year to 2.8 billion at the end of Dec. 31, 2020, and came slightly ahead of analysts’ expectations of 2.76 billion. Facebook’s DAUs increased 11% to 1.84 billion year-on-year. Analysts were looking for DAUs of 1.83 billion.

Despite the strong 4Q performance, the company’s CEO Mark Zuckerberg said, “We continue to face significant uncertainty as we manage through a number of cross currents in 2021.”

Facebook expects headwinds in its advertising revenue growth and expects a “moderation or reversal” in the ongoing shift towards e-commerce amid the recovery in pandemic trends. Zuckerberg also warned of the timing of “platform changes, notably iOS 14, as well as the evolving regulatory landscape.” (See FB stock analysis on TipRanks)

Following the results, Pivotal Research analyst Michael Levine lifted the stock’s price target to $340 (24.9% upside potential) from $315 but maintained a Hold rating.

In a note to investors, Levine said, “we view “social/contextual” eCommerce as one of the most compelling incremental elements to the FB story and believe it could have duration well past 2H21. Additionally, management highlighted ongoing success and adoption with onsite checkout, which could help mitigate prospective signal loss.”

The Street has a bullish outlook on the stock, with a Strong Buy analyst consensus based on 31 Buys, 3 Holds, and 1 Sell. The average analyst price target of $329.53 implies upside potential of about 21.1% to current levels. Shares have gained about 24.9% over the past year.