Wall St. Speaks Out: Facebook: The Growth Story Continues

BOTTOM LINE Facebook reported another strong quarter with 41 revenue growth and strong profit expansion during 3Q15 With many levers of growth yet to be pulled we continue to see many reasons to be increasingly optimistic as For Facebook as for Google size begets more size given the improving capacity the company has to capture a growing share of marketer quotwalletsquot Our YE2016 price target is now 134 per share up from 127 previously and we continue to rate the stock BuyAlthough we39re mindful about ad loads and the everpresent potential that consumers become disenchanted with Facebook for one reason or another and we39re also mindful that the company may add to its investments in areas not directly related to advertising as with virtual reality initiatives at least for now it39s difficult to restrain our optimism on the growth potential for the foreseeable futureSupporting this view we can point to ongoing user growth for the flagship product as well as for Instagram Messenger and WhatsApp and monetization that has barely begun for these additional properties We can point to product improvements such as including more video and search that should help justify a growing share of digital spending on Facebook from existing advertisers over time We can point to international revenue growth that is also yet to come in many large emerging markets such as India which should help to capitalize on spending from marketers in those countries And we can point to the company39s often lower profile focus on new ad products for its small business developer and ecommerce segments of marketer customers who exist in all markets around the world The latter three groups of advertisers collectively account by our estimates for around 70 of the company39s revenue basePost these results looking more closely at the next quarter and those ahead we are raising our forecasts for revenue growth in 2016 and beyond slightly while continuing to anticipate modest margin erosion as the company continues to invest in new platforms The flowthrough effects of those changes lead us to raise our price target to 134 on a YE2016 basis We continue to rate Facebook BuyVALUATION We value FB on a DCF basis with a 70 longterm growth rate a 75 nearterm discount rate and a 109 longterm discount rateRISKS Risks for web publishers relate to 1 high degree of rivalry given absence of barriers to deter new competition from emerging 2 high and increasing capital needs and 3 government regulationsconsumer pushback related to data managementFULL REPORT INCLUDING RISKS AND DISCLOSURES CAN BE FOUND HERE FB 11415pdfThe opinions and points of view expressed in this commentary are exclusively the views of the author and do not necessarily represent the views of MediaVillagecom MyersBizNet Inc management or associated bloggers amp160

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Wall St. Speaks Out: Facebook: The Growth Story Continues

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Brian Wieser

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