According to Baird's Colin Sebastian, concerns surrounding Facebook's growth prospects "seem overblown," and the company is "well positioned" to gain a "disproportionate" share of advertising dollars for years to come.
Sebastian noted concerns over a moderating ad load growth are short-sighted and don't factor in benefits of higher pricing from superior targeting abilities or Facebook's higher click-through-rate and mix. In addition, Facebook's ability to control ad loads is designed to optimize the user experience and keep engagement high.
According to Sebastian, it is "too simplistic" to conclude that Snapchat's recent success comes at the expense of Facebook and its other social media property, Instagram.
"This reminds us of a one-time flawed view that Facebook's revenue growth would come at the expense of Google," the analyst wrote. "Without dismissing potential competitive threats to Facebook, it is important to note that Snapchat usage appears to be somewhat distinct from usage of Facebook/Instagram."
Sebastian noted that Instagram is only in the early stages of monetization and revenue growth while Messenger could represent incremental ad revenue next year, followed by WhatsApp in 2018 or later as recent terms of service changes "may lay the groundwork" for ads.
Bottom line, the analyst believes there is "likely upside" to consensus revenue and margin targets and the stock remains one of his 2016 Top Internet picks.
Shares remain Outperform rated with a $155 price target.
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