Facebook Inc: Ad Load Growth Concern Factor One Note in a Compelling, “Multi-Faceted Growth Story”

Canaccord's Michael Graham sets bullish expectations on FB ahead of tonight's 4Q performance.

Facebook Inc (NASDAQ:FB) is delivering its fourth quarter earnings this evening, and one of Wall Street’s best performing analysts sees a narrative spinning all-around gains from the versatile social media titan. As CEO Mark Zuckerberg’s titan continues to capture more mid-teen users on board while flashing steadily rising engagement and stable pricing expansion, the analyst comes out with a bullish call ahead of tonight’s quarterly show.

Top analyst Michael Graham at Canaccord’s one point of caution: “moderating ad load growth.” Though users are “growing nicely” at a rate of roughly 16% and engagement exhibits expansion, the analyst cannot help pinpointing an “ever-growing burden” on pricing expansion as ad load growth slows.

Anticipating the company’s “multi-layered growth story is still intact,” the analyst is ultimately confident, reiterating a Buy rating on FB stock with a $230 price target, which implies a meaningful 22% upside from current levels.

The main question in Graham’s mind approaching the fourth quarter turnout: “Can pricing expansion offset ad load growth deceleration to keep revenue growth high? Will expense growth guidance be narrowed again?”

Overall, “The platform is still well-regarded among advertisers and further investments in targeting and measurement are likely to keep ad dollars flowing into Facebook budgets. Additionally, adjacent platforms like Instagram, Messenger, and WhatsApp all appear quite early in monetization evolution. Instagram, the furthest along, is effectively competing for more time spent (especially relative to newer, millennial-oriented apps like Snapchat). Though management has signaled slowing ad load growth as a cautionary note for revenue deceleration in 2017, we think Instagram can open up new sources of inventory and the greater focus on improving quality of time spent can lead to pricing expansion,” Graham surmises.

Michael Graham has a very good TipRanks score with a 62% success rate and a high ranking of #144 out of 4,757 analysts. Graham garners 16.2% in his annual returns. When recommending FB, Graham earns 29.7% in average profits on the stock.

TipRanks points to a strong bullish sentiment circulating through the Street on this social media titan. Out of 31 analysts polled in the last 3 months, 29 are bullish on Facebook stock, leaving just 1 on the sidelines and 1 bear sounding the alarm. With a return potential of nearly 17%, the stock’s consensus target price stands at $218.41.

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