Facebook, Inc. - A Growth Story Supported by Reality

As Instagram ad load scales and following our checks with digital marketing firms we raise our estimates ahead of Facebook 4Q earnings on January 27 Discussions with ad buyers suggest modest acceleration in YoY 4Q15 coreFacebook US advertising growth and also suggest Instagram delivering a material revenue contribution Moving past 4Q investor focus likely centers on 2016 opex guidance and Oculus While expense guidance could come in above expectations associated upside to revenue leaves us confident in our 2016E EPS forecast of 285 We raise our 4Q and 2016 estimates due to expected strength in Instagram 315mn in 4QE175bn in 16E and the incorporation of Oculus into our model 370mn revenue in 16E Our Buy Rating and 120 target price remain unchangedChecks with digital marketing firms indicate YoY revenue growth accelerating vs 3Q15 During our 4Q Ad Trends Call MEC Global highlighted that it is seeing FB ad spend growth of 55 YoY above its 3Q reading and indicating general acceleration We model ad revenue growth of 45 YoY to 522bn in line with consensus FX headwinds should continue to be a headwind to international revenue growth but we expect no deceleration on an FXneutral basis We estimate daily active users DAUs growing by 32mn QoQ to 104bn Engagement should hold steady QoQ as defined by DAUsMAUs at 65Instagram contribution and Oculus driving upside to estimates 4Q marks the first quarter that Instagram ad inventory was available to Facebook39s 2mn advertisers via its API Our check with MEC suggested that among its clients 4Q Instagram ad spend was up materially relative to 3Q39s small base The release of Oculus Rift at the end of 1Q16 provides a further tailwind to 2016 results albeit with a narrower margin profile than FB39s adbased businesses We model Oculus revenue of 370mn in 2016E on 550k unit shipments 4 penetration of the highend gaming PC marketFY16 operating margin guidance a key area of focus We expect management to provide opex growth guidance for FY16 on 4Q39s earnings call Should YoY opex growth guidance come in above our 41 estimate investors may look through this due to the launch of Oculus Rift and lower margin contribution from associated hardware salesValuation increasingly attractive At 13x 2017E EVEBITDA and 25x 2017E PE FB39s valuation is approaching a twoyear low as clear growth catalysts are set to deliver a material contribution to consolidated resultsCLICK BELOW TO ACCESS RESEARCH REPORTPRESENTATION including important disclosuresFacebook Inc A Growth Story Supported by RealityAdditional information is available upon request and disclosure information is available at the Nomura Disclosure web page httpgonomuranowcomresearchglobalresearchportalpagesdisclosuresdisclosuresaspxThe opinions and points of view expressed in this commentary are exclusively the views of the author and do not necessarily represent the views of MediaVillagecom MyersBizNet Inc management or associated bloggers

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Facebook, Inc. - A Growth Story Supported by Reality

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Anthony DiClemente

"About That with Carl Mayer:" Alaina Donnellon (Episode 10: Political Spending) - By Carl Mayer

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Facebook, Inc. - A Growth Story Supported by Reality

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Anthony DiClemente

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