The Street Continues To Demand A Sizable Estimate Beat From Facebook's Q3

Modest Upside Seen

However, the firm is still confident of a modest upside to its $6.8 billion ad revenue estimate. Analyst Ross Sandler highlighted the fact that the SME space now accounts for over 50 percent of revenues. With the segment growing faster than any other areas, the analyst sees sustainable ad growth.

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Citing checks, the analyst said Facebook continued to optimize around its five key vectors in ads, namely: bid, placement, audience, creative and ad type. The checks also revealed that the company is taking more control over larger client budgets than before. Sandler believes the company has scope to increase ad load on Instagram to levels closer to core.

Deutsche Bank is of the view that the company will overshoot its $3.06 earnings per share estimate for 2016, as costs narrow around the lower end of its 30–35 percent guidance range.

Multiple Compressed In 2016

While noting that Facebook has witnessed multiple compression in 2016 ahead of revenue deceleration, Deutsche Bank said it thinks multiple is likely to find a baseline in the mid-20s. The firm updated its revenue and earnings per share estimate to account for the current forex rates.

Waiting For Second Act

The firm said Facebook is yet to establish a second act besides ad, although it believes messaging/payments, VR/AR or AI could potentially play the role. The firm sees secular growth for Facebook's core ad business over the next one or two years, as cross-device and offline attribution become the narrative for the industry.

Street Overlooking Messenger, WhatsApp

While the Street has discounted the prospects for the core Facebook and Instagram business, the firm noted that it has turned blind eye to the potential for Messenger and WhatsApp, which it expects to add $10 billion in incremental revenues when fully ramped up.

As such, Deutsche Bank has a Buy rating and a $170 price target on the shares of the company.

At time of writing, shares of Facebook were down 0.41 percent at $129.70.

Full ratings data available on Benzinga Pro.