BMO Lowers Facebook's Price Target To $125 Following Cautious Guidance

Following comments regarding a “leveling off” in ad load growth in H2 2017, Facebook Inc FB indicated there was likely to a “material” ad revenue growth deceleration in 2017.

BMO Capital’s Daniel Salmon maintained a Market Perform rating on the company, while lowering the price target to $125.

Cautious Guidance

Salmon mentioned that management’s comments regarding “continued investment next year have investors trying to interpret whether these two comments are simply statements of the obvious, or intended to tap down consensus expectations.”

The analyst expects investors to continue to debate the need to grow spending and ad revenue sharing for premium content if the company’s video ad business was likely to challenge TV budgets.

Concerns

Following a more than 5 percent decline in the stock, a CNBC report pointed out that the risk one faced with “crowded stocks,” such as Facebook, is that when the sentiment moves to the downside, “sell-offs can pick up steam quickly.”

Facebook reiterated its 2016 GAAP expense growth guidance at 30-35 percent, with the non-GAAP expense growth guidance being lowered from 45-50 percent to 40-45 percent.

Although no specific guidance was provided for 2017, management did comment about expecting increases in engineering headcount, capex and VR content spending, as well as decelerating ad revenue growth.

The company did report robust results for Q3 2016, with the non-GAAP EPS, revenue and adjusted EBITDA beating expectations.