Facebook (FB) stock could fly much higher if the brightened analyst outlook on Wall Street is any indication.
Shares of the Menlo Park, California-headquartered social media stalwart opened up more than 11% higher and continue to rise in Thursday trading. However, after a big earnings beat on Wednesday evening, analysts have indicated 2019 could be a turnaround year as the worst of fears for the often-hated company fail to foment.
"Facebook is the world's largest social networking company, with over 2.7 billion monthly average users worldwide," Oppenheimer analyst Jason Helfstein observed. "As users upload more personal information, this increases Facebook's competitive position. With the fragmentation of media and communication, we believe consumers will increasingly find media and information through their social graph, positioning FB in the middle of this information exchange."
The positioning should allow Facebook to continue to drive average revenue per user upward, in his view.
In line with his analysis, he raised his price target to $195 per share from $185 and reiterated an "outperform" rating for the shares.
Helfstein's more bullish take was in line with the investment community, as 18 analysts raised their price targets after the earnings release, taking the consensus target to $192.02.
On the Offensive
One of the most important aspects of the earnings call that is motivating price target hikes is the more aggressive stance from executives, who have fielded fire from politicians, the media, and even the now-brightening investment community.
"The most important takeaway for us from Facebook's fourth quarter was the more offensive stance signaled by CEO Mark Zuckerberg to deploy engineering resources toward product development and revenue-generating initiatives versus the prior year of defense and managing security/content issues on the platform," said Credit Suisse analyst Stephen Ju. "As we flow through the better than expected results for Facebook's advertising business, we increase our first quarter advertising projection."
He added that marketplace e-commerce and mobile offer further opportunity for growth for the company.
"Facebook will be able to drive long-term revenue growth without a material lift in ad loads with, near-to-medium-term growth drivers including Instagram and Marketplaces," Ju concluded. "Street models continue to underestimate the long-term monetization potential of other billion-user properties like Messenger and WhatsApp, and free cash flow growth recovery for 2020, which we expect the company to signal on the third quarter results."
He raised his price target slightly on the analysis, to $210 per share from $208, on the bullish outlook.
Jefferies analyst Brent Thill echoed the sentiment.
"After playing defense in '18, FB is shifting gears to offense, investing in core products to drive monetizable engagement," he noted. "After a year of consistently negative headlines, we believe that FB is investing more in the monetization opportunities ahead of itself."
With a positive take on this action, he too joined the chorus of target raises, lifting estimates to $200 from $180 per share.
Surging on Stories, Streaming
Taking a page from Snapchat's (SNAP) playbook, the company could also be set to cash in on stories across Facebook, Messenger, and News Feed as well as video content.
"Given that it's still early days for Story monetization, along with the format's attractive pricing and high-engagement, fully-immersive nature, we think that Facebook may be able to increase monetization faster than most investors expect," Cannacord Genuity analyst Maria Ripps explained. "We continue to like the long-term growth outlook and are raising our price target to $200."
2019 could also serve as a pivot point for the company's efforts with Facebook Watch, which builds on the engagement that stories are seeking in the first place.
"I also expect this to be the year where Watch becomes more mainstream," Zuckerberg told analysts. "There are now 400 million people who use it every month. People on average spend over 20 minutes on Watch daily. This means we're finding ways for video to grow outside of News Feed, so it doesn't displace the social interactions that people primarily come to our services for."
Zuckerberg indicated that he is aiming at Facebook Watch eating into Alphabet's (GOOGL) YouTube business model, where a community of creators can be fomented.
"The two big things that we're really focused on now in Watch are within the Watch tab, also just making sure that the consumption isn't all just passive consumption and making it so that there are more two-way interactions between viewers and the creators," he explained. "These are all things that make it so that the video watching experience isn't just about passive consumption, but about interaction and that's going to I think help really drive engagement as well."
Zuckerberg added that monetization for creators will create a strong community that can steal this market share.
"We think that the more money that creators can make through Watch, there'll be a virtuous cycle there and that's going to be really important for continuing to grow this as well," he said. "Right now, it looks like this is going in a good direction. It's still very early. We're still growing quickly, but from a small base. But it's one of the things that I'm excited about for this year."
The segment now counts 400 million users, greater than the entire population of the United States, with a surprisingly strong 20-minute average engagement time. The growth in figures is certainly bullish for the feature as a possibly overlooked catalyst.
Clicking on Competitors?
Still, given the deceleration signaled by executives and the significant surge in share price, some analysts were happier to close the Facebook tab and look elsewhere as the company's shift takes shape.
"Nothing in the results should cause investors to look at the company in a meaningfully different way vs. previously," Pivotal Research analyst Brian Weiser commented. "The list of problems the company is grappling with is vast, and the shapes of solutions are unclear."
He pointed to the persistently poor press cycle as a key risk to the company.
This is added to in terms of the company's still nascent shift in advertising revenue.
"Facebook is working against a shift in engagement from core Facebook and the News Feed to Instagram and Stories," Stifel analyst Scott Devitt Said. "Despite upside to current-quarter expectations, we remain Hold rated given the current set of challenges we believe Facebook faces relating to privacy, regulation, Stories transition, and user fatigue."
Yet even Devitt indicated a higher price target for the stock, raising his share price estimate to $155 from $150.
So, while there may be better opportunities in his view, the consensus remains strong that the stock is undervalued.
For more on the technical action and if there is still room to get aboard the Facebook train as it rumbles ahead, check out Bruce Kamich's chart analysis here.