Facebook Inc (FB) Could be a $100 Stock: Brian Nowak


Facebook Inc (NASDAQ:FB) reported their second quarter results, which beat the analysts’ estimates in terms of revenue and earnings per share. The average number of daily active users in June, 2014 was 829 million, which represents an increase by 19% year-over-year. They reported second quarter revenue of $2.91 billion, which went up by 61% compared to second quarter of 2013. Brian Nowak, Senior analyst at Susquehanna Financial talked on Bloomberg TV about Facebook’s second quarter results and their growing ad dollar base.

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Big number for Facebook Inc (NASDAQ:FB) is the adjusted EBITDA margin, which increased by 68% from second quarter of 2013. Nowak thinks that Facebook continues to get bigger share of advertising budgets from brands, small and medium sized businesses, direct response advertisers and app installations.

“Average incremental EBITDA margins. So what percentage of every advertising dollar that flows through the EBIDTA, are typically 70 to 80%. So as this advertising dollars get bigger, it makes EBIDTA margin go higher and higher, and that’s really what Facebook is benefiting from,” he said.

Facebook Inc (NASDAQ:FB) had a busy first half with acquisitions. Nowak feels that these acquisitions had put a little bit of pressure on the bottom line margin. However, he considers that as the advertising dollar base grows, they have more possibilities to work on the integration of acquired companies and still put up with good EBITDA dollar growth.

Since the Facebook Inc (NASDAQ:FB)’s advertising dollar base keeps increasing it is obvious to assume that someone is losing their advertising dollars. Nowak said that Google Inc (NASDAQ:GOOGL) is not losing any of their advertising dollars. He thinks that Yahoo! Inc. (NASDAQ:YHOO) and other smaller display advertising companies are losing the most.  Nowak said that there are some dollars coming offline from print advertisements and very small amount of dollars moving out of TV.

Nowak had upgraded the Facebook stock twice in July and he thinks that Facebook shares are worth the price. He feels that EBITDA is a cleaner number to value the company. He said that the company is still growing topline at 60% and compared the growth of Facebook to Google.

“If you look at what Google traded at when it was this size and growing this fast, it traded at 22 times EBIDTA. So if you really think that Facebook should trade at same multiple as Google did at that point of its life, you’d actually argue it’s a $100 stock,” he added.

He thinks that this Google-like growth trend for Facebook gives more confidence on them to investors.

Disclosure: None

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