Facebook: Q3 Reversal & Strategy Changes Indicate Potential Bottom

(Preview) Company Update (FB US) (Buy)

Summary

• Facebook released Q3 2021 results overnight, and shares recovered slightly after having fallen 14.5% from their September peak.

• Ad revenues reversed in Q3 to fall below Q2, due to the one-off impact of iOS 14 and macro issues, but other operational trends were solid.

• Management outlook implies growth will resume in Q4, and major changes announced in product strategy will also help in the long term.

• Lower expenses in the revised 2021 outlook mean EBIT is likely to grow 40% year-on-year. Last-twelve-month P/E is 23.3x.

• With shares at $328.69, we expect an exit price of $619 and a total return of 88% (21.9% annualized) by 2024 year-end. Buy.

Introduction

We review Facebook’s Q3 2021 results released overnight (Monday, October 25). Facebook stock rose 1.8% in after-market trading.

We initiated our Buy rating on Facebook in May 2019. As of Monday close, shares have gained 92% since, including 20% year-to-date, though they have fallen 14.5% from its 52-week high in September.

During Q3, seq…