5 reasons why FB is tech’s best growth story

Facebook (NASDAQ:FB) might well be the best growth story in tech right now. So says top RBC Capital analyst Mark Mahaney. His support for the stock comes in the wake of Facebook’s very robust Q2 results on July 26. FB announced “49% ex-FX Ad Revenue growth, 55% adjusted EBITDA growth, and 47% free cash flow growth” all very impressive for a company that is already delivering a massive $36 billion revenue run-rate. Shares are now trading at $172.45 up from $165.61 pre-earnings.

Encouragingly core FB is growing extremely well, with “almost unprecedented Ad Revenue growth consistency” says Mahaney. And this growth shows no signs of slowing down. On the contrary, Mayahey writes: “we believe that FB’s current low market shares—approximately 15% of Global Online Advertising and 5% of Global Total Advertising—will help it to maintain premium growth for a long time.”

Indeed, Mahaney has 5 key reasons to be bullish on the stock:

1 Very large, growing user base with more than 2 billion monthly active users (MAU), up by double-digit percentage year-on-year and beating the Street estimate of 1.98 billion users. Mahaney points out “This overall growth rate remains very impressive given FB’s massive size…and don’t forget that FB MAU’s don’t include Instagram (700MM+ MAUs) or WhatsApp (over 1.2B MAUs).”

2 Engagement remains consistently high despite market concerns, and increased engagement will in turn attract more ad dollars.

3 Still many growth levers to pull, most notably video advertising and Instagram monetization.

4 Mobile monetization now going strong, bringing in $8 billion of revenue for the quarter, beating the Street’s estimate of $7.65 billion.

5 Very high margins- FB currently drives EBITDA margins in the low-60%s, with Mahaney writing “we think that increased investment is actually a positive at this point in the company’s growth.”

Ultimately Mahaney sums up his bullish take on FB post-earnings: “FB reported another strong quarter, with results coming in handily ahead of expectations and growth trends remaining intrinsically very impressive. FB also lowered its expense growth outlook. Raising estimates and increasing price target to $195. Reiterating Outperform – still our No. 1 pick.”

His $195 price target, up from $185 previously, translates into 7.3% upside from the current share price. And why should we listen to him? Well, the five-star analyst is ranked #11 out of 4,160 tracked analysts with a very strong track record in general:

And if we look at his FB performance specifically, we can see that Mahaney has delivered an incredible success rate of 100% and an average return of 27.9% across his 31 FB stock ratings. In other words, Mahaney is a top analyst to follow to outperform the market.

Overall TipRanks analytics exhibit FB as a Strong Buy stock with upside potential of 7.8% from the current share price of $172.45 to the average analyst price target of $185.91. In the last three months, the stock has received 32 buy ratings, 3 hold ratings and only 1 sell rating from analysts. Interestingly if we limit the results to only the best-performing analysts then the stock retains its “Strong Buy” consensus while the 12-month price target rises to $189.03 (9.6% upside).

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