Facebook Eyes Meaningful Investment In 2017, But What Does That Do For The Stock?

While reporting strong Q3 2016 results, Facebook Inc FB suggested there could be significant investment likely in 2017, which Credit Suisse’s Stephen Ju believes could weigh on the stock in the near term.

Ju maintained an Outperform rating on the company, with a price target of $170.

Facebook reported revenues of $7 billion, with EPS of $1.09, ahead of the estimate and the consensus. The company reported a 94 percent increase in its Q3 profit, from the year ago levels.

Investment Likely in 2017

The company also reported 59 percent FX-neutral advertising revenue growth, although management commentary implied that meaningful investment was likely in 2017.

Ju believes that with Facebook currently generating incremental adjusted EBITDA margins of 73 percent and with free cash flow dollars up 78 percent year on year, “in order to keep up with the prior pace of OpEx growth, Facebook will have to figure out a way to spend an incremental $5.2b dollars – which is certainly probable but a scenario we view as unlikely.”

On the other hand, the analyst also expects the company to be able to drive long-term revenue growth without any meaningful increase in ad loads, stating that Wall Street continues to underappreciate the long-term monetization potential of Facebook’s new products.

The stock declined in after-hours trading.