Facebook: Strong Q2 Results Unfairly Punished With 4% Dip (Preview)

Company Update (FB US) (Buy)

Summary

• Facebook Q2 results showed ad revenues up 56% and EPS doubling, and yet shares fell 4%, providing investors a buying opportunity.

• Ad revenue growth was driven primarily by a rise in average price per ad, reflecting market demand and the unique value of Facebook's ads.

• The impact of iOS 14.5 has been within expectations; user numbers are growing and engagement is stable, even in the oldest U.S. market.

• 2021 outlook is largely unchanged from the last quarter, and new features and services are laying the foundation for longer-term growth.

• With shares at $358.32, we expect an exit price of $560 and a total return of 56% (13.9% annualized) by 2024 year-end. Buy.

Introduction

We review our Facebook investment case, after Q2 2021 results released overnight on Wednesday (July 28). Facebook stock closed down 4.1% on the following day, but remained 33% up year-to-date.

We initiated our Buy rating on Facebook in May 2019. Since then shares have gained 109%, close to double the gain in the S&P 50…