Peck: Facebook Dominating, But Investors But May 'Overestimate' Instagram And Oculus

• Facebook Inc FB shares have surged 14 percent since January 22.
• SunTrust Robinson Humphrey’s Robert S. Peck maintained a Buy rating for the company, while raising the price target from $120 to $125.
• While Facebook is poised to benefit from the secular shifts to digital, mobile and video, investors may be overestimating the performance of new products, Peck stated.

Analyst Robert Peck wrote, “Facebook remains in prime position, in our view, to capitalize on the secular shifts to digital, mobile and video.” He added that “Facebook has a long runway,” given that ad dollars are likely to follow time spent, with more than 1 billion daily visitors, improving targeting and analytics, new ad units, and above 20 percent of time spent on mobile.

Peck enumerated the 4Q positives as:

1. Acceleration in ex-currency ad revenue growth to ~66 percent y/y and 31 percent q/q, beating channel checks and SunTrust’s estimates
2. MAU growth steady at 14 percent and DAUs up 17 percent, with growth across all geographies
3. Improvement in operating margin by 270bps y/y to 60.3 percent, with costs up 42 percent. Improvement in incremental margins versus 3Q and 2Q to 66 percent
4. Operating expense guidance growth for 2016 of 45-55 percent calls for an incremental $4B of investment and compares to 50 percent for 2015
5. Acceleration in ARPU - US and Canada ad ARPU up 56 percent y/y, versus 48 percent in 3Q, and Global Ad ARPU up 45 percent y/y ex-FX versus 38 percent in 3Q
6. Video viewing reached 100M hours per day across 500M average viewers – “we see video discovery and monetization as important levers going forward,” the analyst wrote
7. More than 2.5M advertisers and 50M SMBs on the platform - FAN crossed $1B gross revenues

Peck commented, however, that expectations remained elevated, and investors may be overestimating the “timing, adoption and success” of new products, such as Instagram and Oculus.