Results Reinforce Facebook's Dominance in Social Media

Facebook's excellent second-quarter results have reinforced our view that firm is the dominant social network player, and is one of the leaders in the digital ad market.

Second-quarter total revenue grew 45% year over year to $9.3 billion. Ad dollars keep coming to Facebook as the firm reported ad revenue of $9.2 billion during the quarter, up 47% over the prior year.

Facebook is also seeing continued growth in monthly average users, underscoring the network effect that supports the firm's wide economic moat. The firm ended the quarter with more than 2 billion monthly average users, representing a 17% year-over-year growth rate.

Management did not make significant changes to its 2017 guidance and still expects a slowdown in ad revenue growth during the second half. We've increased our fair value estimate for Facebook, as we now expect higher revenue growth and slightly less margin compression during the rest of the year and beyond. However, we would continue to wait for a wider margin of safety before investing in this name.