Raymond James Upgrades Facebook, Ad Revenue Should Be Strong This Year

The Street expectations for Facebook Inc’s FB ad revenue growth in 2017 seems achievable, while the company’s expense growth may be lower than consensus estimates, Raymond James analysts said in a report. They upgraded the rating on the company to Strong Buy, while maintaining the price target at $160.

Ad Growth

The consensus ad growth estimate of 35 percent appears “very achievable,” based on expectations for DAU growth, time spent, ad loan and pricing, the analysts mentioned. The estimate compares with ~55 percent growth in 2015. Facebook should be able to meet the consensus estimate, with ~5 percent ad loan growth in 2017, versus ~13.5 percent in 2016.

Expense Guidance

Facebook had indicated plans to invest aggressively in 2017. The Street estimates, at ~41 percent operating expense growth, appears “reasonable,” the analysts stated. They noted that over the past three years, the company’s non-GAAP operating expense growth has been below the midpoint of the original guidance range by ~7.5 percent, 9 percent and 8.5 percent.

Raymond James raised the expense growth estimate for 2017 to 34 percent, which is still below the Street estimate of 41 percent.

User Engagement

“According to our recent consumer survey, Facebook remained the clear leader with 81% usage for core Facebook, 47% for Messenger, and 32% for Instagram,” the report mentioned. Although there have been concerns surrounding low usage among the younger age group, Facebook was “the clear leader” among the 18-29 age group, with 90 percent usage for core Facebook, 63 percent for Instagram and 64 percent for Messenger.

“FB was also ranked the most important social app among the 18-29 cohort,” the analysts added.