If Facebook ‘s Wednesday earnings are a harbinger of things to come during the winter’s season of earnings, social-media stocks could be in for a happy winter.
Facebook (ticker: FB) reported a strong quarter Wednesday, telling investors that online advertising spending during the holiday season went on longer and was more lucrative than it expected. The quarter ending in December is usually good for online advertising. But because of the Covid-19 pandemic, more economic activity is being done digitally, which has benefited the social media giant.
Evercore analyst Kevin Rippey wrote in a client note Thursday that Snap (SNAP) could see a similar boost. On the company’s latest earnings call, executives said Snap was seeing a recovery in advertising, and that they were expecting revenue growth of roughly 50% in the fourth quarter. It is set to release results Feb. 4 after the closing bell.
Rippey is even more optimistic, writing that conversations with advertising customers during the holidays were the most positive his team has ever heard. According to his financial model, Snap will report revenue growth of 65% and 70% when it announces earnings. Analysts expect growth of 52%.
”While our new estimate is the highest among sell-side analysts, the real aim of this report is to highlight how investors should think about a range of revenue outcomes. We expect the stock to move as a function of revenue growth above or below +65%,” Rippey wrote.
Snap rival Twitter (TWTR) is also in a strong position ahead of earnings, which it is set to report Feb. 9 after the closing bell. KeyBanc analyst Justin Patterson wrote in a client note Thursday that his view of Twitter now values the stock at $65, giving it a Buy rating.
In the note, Patterson says that Twitter has made significant improvements to its main product, the Twitter app for the web and mobile devices, which will help the company generate more money.
Patterson calculates that the improvements for both the company’s ad customers and its members has positioned the company to boost revenue more than 20% a year through 2022. Among the positive changes to Twitter’s technology, he notes, are its targeting capabilities and its acquisition of Revue, a newsletter platform.
Analysts polled by FactSet expect sales growth of 23% in 2021, and 4.3% for 2020.
Despite the potential fallout from banning former U.S. President Donald Trump from the platform, Patterson thinks the action hasn’t yet caused users to flee the platform. Rather, he estimates that the company will grow its daily user base by about 10% year.
Still, Rosenblatt Securities analyst Mark Zgutowicz wrote earlier this year that Twitter’s decision to remove Trump from the platform might hurt engagement, which in turn could hurt ad sales.
Twitter is holding an analyst day Feb. 25, the first one it has had in years. At such meetings, executives typically provide analysts with details about the company’s financial performance and what’s coming in the future, including, in some cases, financial forecasts. Snap, too, is holding an investor day, slated for Feb. 23.
Shares of Facebook declined 2.6% to close at $265 during regular trading Thursday, as Snap rose 8.5% to $53.13. Twitter gained 7% and closed at $51.57 Thursday.
Write to Max A. Cherney at max.cherney@barrons.com
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January 29, 2021 at 05:03AM
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Analysts Find Reason to Get More Bullish on Social Media - Barron's
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