Technology

Should Wall Street Be This Bullish on Facebook After Its Major Changes?

Jon C. Ogg

Published: February 1, 2018 12:50 pm

Last Updated: January 12, 2020 3:51 am

Facebook Inc. (NASDAQ: FB) admittedly has had some errors that degraded its social media platform experience. After being included in the tools for election meddling, there also have been internal changes to the newsfeeds and in what can and cannot be used for articles and advertisements on the platform.

Ahead of earnings, the major bullishness by Wall Street analysts had halted the aggressive target price hikes due to all the changes taking place in the platform. But now CEO Mark Zuckerberg has managed to show how a large drop in daily users and a drop in actual usage is really a good thing in its earnings report.

It turns out that Wall Street analysts jumped right back on the bullish bandwagon that they had been on in December and January. 24/7 Wall St. tracked more than 10 analyst target price hikes, some quite large, on Thursday after Facebook’s earnings report.

Merrill Lynch reiterated its Buy rating on Facebook and raised its price objective to $265 from $230. The firm sees changes coming that will not hurt ad revenues, and it raised 2018 earnings estimates by 13%. Other strengths cited were pricing strength, momentum in Instagram and FX tailwinds. While the company admitted that recent platform changes are lowering usage, the results and commentary are suggesting a neutral to positive view for revenues.

Credit Suisse reiterated its Outperform rating and raised its target price to $240 from $232. The firm noted that Facebook shares are climbing over a wall of worry, but the offset was in its advertising price growth acceleration and that advertisers seem willing to buy more targeted ads at higher prices. Credit Suisse sees free cash flow growth resuming for Facebook by 2019 as its capital spending reaches a plateau of about $16 billion.

CFRA (S&P) reiterated its Buy rating on Facebook but raised its 12-month target to $250 from $200. With revenues up 47% and with 89% of advertising revenue coming from mobile, CFRA thinks the stock is attractively valued against peers, even after changes to its newsfeed.

Oppenheimer reiterated its Outperform rating and raised its price target to $225 from $200. Its note showed that the engagement decline should not hurt Facebook’s revenue growth. The firm even thinks that Facebook is under-monetized by 40% to 50%, according to its own analysis.

Wedbush Securities reiterated its Outperform rating and raised its price target to $260 from $230. The firm said that Facebook’s mobile strength, ad pricing and expense control drove fourth-quarter results well above its estimates. While the user growth looked disappointing, this was offset by improving monetization and sustained levels of engagement.

Other post-earnings key analyst calls, and this is not even all the printed hikes, were seen as follows:

• Barclays reiterated its Overweight rating and raised its target to $225 from $215.
• BMO Capital Markets maintained a mere Market Perform rating but did raise its target price to $175 from $170.
• KeyBanc Capital Markets reiterated its Outperform rating and raised its target to $225 from $200.
• Canaccord Genuity reiterated its Buy rating and raised its target price from $230 to $240.
• Jefferies reiterated its Buy rating and raised its price target to $230 from $225.
• JPMorgan reiterated its Overweight rating and raised its target to $242 from $230.
• Morgan Stanley reiterated its Overweight rating and raised its target from $215 to $230.
• Pivotal Research maintained its Sell rating but raised its target to $152 from $147.
• RBC Capital Markets reiterated its Outperform rating and raised its target to $250 from $230.

Now consider all the price target hikes that had been seen in January, from many of the same firms, making calls ahead of earnings and ahead of the newsfeed changes:

• Citigroup reiterated its Buy rating and raised its price target to $215 from $210.
• Cowen reiterated its Outperform rating and raised its target from $200 to $220.
• Credit Suisse reiterated its Outperform rating and raised its target from $230 to $232.
• JPMorgan raised its price objective to $230 from $225.
• Morgan Stanley (Overweight) raised its target price to $215 from $200.
• SunTrust Robinson Humphrey reiterated its Buy rating and raised its target to $240 from $215.
• Wells Fargo reiterated its Outperform rating and raised its target from $215 to $230.

Facebook shares were last seen up 4.2% at $194.85. Prior to earnings, Facebook had a 52-week trading range of $130.30 to $190.66 prior to the earnings report. Now its 52-week and all-time high went above $195 on last look.