Analysts Love Facebook Inc (FB) Stock for All the Right Reasons

Analysts love FB stock because of its digital ad dominance

By Craig Adeyanju, InvestorPlace Contributor
fb stock

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Facebook Inc (NASDAQ:FB) is enjoying a good start to 2017, with FB shares already trading 11% higher since the first trading day of the year. Facebook didn’t end 2016 so positively with the stock closing the year roughly 13.7% off its 52-week high. However, the opening rally it has enjoyed means that Facebook stock is now only roughly 3.4% off its 52-week high.

Analysts Love Facebook Inc (FB) Stock for All the Right Reasons
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Can FB shares continue their ongoing rally to reach the 52-weeks high again and even surpass it?

The quick answer: Yes. That’s definitely on the cards, especially going by what Wall Street folks are saying. In fact, 22 analysts believe Facebook is a buy, 22 analysts rate it as outperform, 3 analysts say it’s a hold. None of the analysts currently say that investors should sell Facebook stock. The average price rating on Facebook is currently $154.36 a share, meaning Wall Street believes FB shares carry a 23% upside potential.

With that in mind, here’s a quick look at the top reasons Wall Street RBC’s Mark Mahaney is so bullish on Facebook stock.

Facbook’s Expansion Into China

China banned FB in 2009 in the wake of Urumqi unrest in July 2009 in order to control flow of information about the unrest. RBC Capital Markets’ Mark Mahaney predicted that China would reopen its door to Facebook in 2016, but it didn’t happen. He believes it could happen this year, given reports in November 2016 that FB had developed software with the capability of controlling posts that appear in certain geographic regions.

Aegis Capital’s Victor Anthony is also upbeat of Facebook’s chances in China.

With Facebook on course to reach 2 billion users this year without China, the opportunities become bigger once China allows FB in its country again. Keep in mind that China currently has the largest number of internet users globally.

FB Stock and Growing Ad Dominance

Cowen Group recently published its 2017 Proprietary Ad Survey and the results showed that Facebook is becoming increasingly important to digital ad buyers who are moving away from TV advertising.

Cowen’s John Blackledge noted that Facebook is demonstrating social leadership, with roughly 75% of ad dollars being apportioned to the central Facebook platform as well as Instagram. The success here is a result of FB’s first-in-class targeting capabilities.

In addition, Cowen’s survey found that FB’s appeal as a video advertising platform is growing as well. The survey showed that 17% of ad buyers consider using Facebook Video for a distinct campaign. In 2015, only 10% of respondents would consider doing so. Again, with FB’s targeting capability, brands will only become more attracted to Facebook Video advertising.

Oppenheimer’s Jason Helfstein also noted that spending on ads increased during the 2016 holiday season, meaning there’s a “substantial upside to pricing” FB ads because increasing demand gives companies opportunity to raise prices. And the fact that it has the best targeting capability helps as well.

He also pointed to Instagram’s impressive growth rate. December 2016 saw Instagram grow its monthly active user base to 600 million, meaning it added 100 million users in six months. Helfstein said product innovation such as the launch of Instagram Stories and live video have helped accelerate growth.

Likewise, Aegis Capital’s Victor Anthony said Instagram raked in $1.8 billion in revenue in 2016 and he expects that figure to double in 2017. As of September last year, Instagram had 500,000 active advertisers. This shows that Instagram is truly a fertile land for advertisers.

Anthony also likes recent updates to Messenger and WhatsApp that make it possible for users to accept payments, buy airplane tickets, confirm reservations, etc. He believes this move makes way for Facebook to start making business pay for activities conducted via these products. Anthony expects this feature to be introduced in 2018.

Bottom Line on Facebook Stock

Personally, I like the moves FB is making in the AR space. AR is going to disrupt ecommerce, and make it bigger than ever. Facebook is among the leaders here. Add this to what the analysts have said and FB stock looks like a buy. However, investors need to keep an eye on valuations. Facebook’s key valuation metrics make FB look expensive relative to competitors. For instance, its forward price-to-earnings ratio of 24.68 is higher than Alphabet Inc’s (NASDAQ:GOOG, NASDAQ:GOOGL) 19.62.

As of this writing, Craig Adeyanju did not hold a position in any of the aforementioned securities.

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