Facebook Inc (FB): Don’t Worry- the News Feed Update Will Not Shake the Upward Trajectory of Advertising Revenue Gains

One of Wall Street's best analysts explains why the changes that have upset FB investors today will ultimately prove to be valuable longer-term.


Facebook Inc (NASDAQ:FB) shares are sinking roughly 4% after CEO Mark Zuckerberg’s news of a News Feed algorithm revamp. Social media enthusiasts, prepare to pay more attention to your friends and family in your content for some more “meaningful interactions.” Investors seeking engagement from the platform, should you prepare for a decrease?

Top analyst Mark Mahaney at RBC Capital weighs in with his two cents on the matter, commenting that in the bigger picture, “we do not think this will have any meaningful impact on advertising revenue growth.”

Even if public content takes a backseat, this is to service a “more relevant” feed that down the line could hike user and engagement gains.

Therefore, the analyst reiterates an Outperform rating on FB stock with a price target of $230, which implies a 27% upside from current levels.

“CEO Mark Zuckerberg also highlighted in a post that this is in part a reaction to the fact that content from businesses, brands and media has grown on the platform,” explains Mahaney, adding some more color: “We see Facebook’s News Feed change as Facebook reacting to greater public scrutiny of its value proposition, and the company is probably reacting to signs of slipping satisfaction among its user base.”

True, “Near term, these changes could reduce ad load,” Mahaney acknowledges, but on a bullish note, “we think pricing may rise to offset this.”

Overall, “We believe these changes will be beneficial to Facebook in the medium and long term. In our view, making the feed more relevant should boost user and engagement growth over time. Facebook is making the service more social and less media, and that’s likely a positive for the vast majority of users,” argues the analyst.

“Net/net” from Mahaney’s eyes: “We do not believe this move will change the trajectory of Facebook’s Advertising Revenue growth. No changes to our estimates. Still our #1 long.”

Mark Mahaney has a very good TipRanks score with a 69% success rate and a high ranking of #34 out of 4,743 analysts. Mahaney garners 22.4% in his yearly returns. When recommending FB, Mahaney gains 31.7% in average profits on the stock.

TipRanks indicates mostly bullish praise as Wall Street’s sentiment on FB, with 29 out of 30 analysts polled in the last 3 months rating a Buy on the social media titan and just 1 issuing a Sell. With a solid return potential of almost 20%, the stock’s consensus target price stands at $216.81.