Piper Jaffray analysts gave Facebook a bullish initiation and overweight rating, citing the social media giant’s finesse in handling bad press while at the same time leveraging investments, The Street reported on Tuesday (Dec. 3).
In premarket trading, Facebook shares were $197.50, down 1.1 percent. Piper Jaffray gave it a $230 price target based on Facebook’s latest quarterly results, which illustrate that neither advertisers nor users have been adversely impacted by the company’s struggles.
Piper Jaffray said the move was due in part to the continued shift of advertising dollars spent online, which is expected to grow about 10 percent over the next four years to 60 percent.
“We do not expect the flow of news related to government inquiry and investigation into the company’s business practices, data privacy, election tampering, etc., will subside anytime soon,” Piper Jaffray Analyst Michael Olson said in a note. “While this does pose a risk to Facebook shares, we believe most investors have become comfortable with the fact that this is an ongoing issue with risk of periodic multibillion-dollar fines.”
Facebook has “elevated its opex and capex spend,” which is good for the “generation of free cash flow,” according to Olson. He noted that capex and opex spending has a potential downside. “Facebook invests in various new categories and initiatives, such as Watch and Marketplace. An inability to monetize these initiatives, while not significantly material to company performance currently, would result in an unfavorable return on investment for this spend,” Olson wrote.
Half of Facebook’s revenue comes from the U.S. and Canada, with an increasing percentage coming from foreign revenue generation.
Facebook’s third-quarter results topped expectations on the heels of advertising growth, adding tens of millions of new users in the period across all regions. Sales were up 29 percent for total sales of $17.7 billion, better than the $17.4 billion expected. The adjusted earnings per share of $2.12 were better than the $1.91 expected.