Citi Raises Facebook's Target To $158, Says Street Forecasts Are Conservative

Street estimates for Facebook Inc FB appear reasonable and could even prove conservative, Citi’s Mark May stated in a report. He maintained a Buy rating on the company, while raising the price target from $148 to $158.

It is difficult to overstate the impact Facebook has on people’s lives around the world as well as on the advertising industry, analyst May commented. He added that in recent months there have been investor concerns around a possible slowdown in ad load growth and potential threat from Snapchat on Facebook’s user and user engagement growth.

“We analyzed these concerns by stress testing key underlying FB model assumptions and concluded that Street forecasts not only appear reasonable but also potentially conservative,” May wrote. He further mentioned that as investor concerns around these growth drivers abate, Facebook’s multiple could expand.

Key Insights

The analyst stated that the analysis had highlighted three key factors:

1. Investor concerns around the slowdown in ad load growth were overblown.
2. Investor concerns around the impact of Snapchat’s growth on Facebook’s user and user engagement growth seem unfounded
3. There seems to be an upside bias to the consensus forecasts from (a) conservative expectations for growth in key underlying drivers such as ad load and CPM growth for core Facebook (b) do not reflect contributions from scaled platforms like WhatsApp and Messenger or from potential new opportunities, such as longer form video, ecommerce, payments, etc.

The EPS estimates for FY16, FY17 and FY18 have been raised from $3.90 to $3.93, from $4.74 to $5.16 and from $5.69 to $6.43, respectively.

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