CITI: Alphabet’s earnings are good news for Facebook

FB vs. Google revenue growth

Alphabet, the parent company of Google, beat expectations in its second quarter earnings report on Monday, which is good news for Facebook, according to one analyst.

Facebook reports its second quarter earnings on Wednesday, and Mark May of Citi research expects the company to beat expectations.

“FB’s advertising revenue has been 93% correlated with GOOG’s gross Properties revenue over the last five quarters, and GOOG’s 2Q17 results imply upside to FB expectations in the quarter,” May said in a note to clients.

May says that over the last five quarters, Facebook’s ad revenue has been 93% correlated to Google’s gross sites revenue. Taking into account Google’s gross site revenue growth reported for the second quarter, May expects Facebook’s ad revenue to grow by 51% year-over-year. That’s higher than the Wall Street consensus of 45% growth.

Facebook and Google make up a huge share of online advertising space. Combined, the two companies brought in 77% of gross digital ad spending in 2016, and 99% of growth in the area. News publishers recently asked Congress to grant them an antitrust exemption so they could bargain collectively with the two companies.

May rates Facebook a buy ahead of earnings and set a price target of $US190 a share, which is 15% higher than the current stock price of $US165.15.

Facebook is up 41.4% this year.

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