Wall Street Says Less Time Spent on Facebook Is No Big Deal

(Bloomberg) -- Facebook’s news feed changes led to people spending less time on the site, while the fourth quarter growth rate for the number of users of the social network also fell. But Wall Street says not to worry. Multiple analysts raised their price targets for the stock, noting that the changes won’t affect revenue growth or Facebook’s ability to make money off its users.

The shares had a wild ride in the post-market session Wednesday, initially falling as much as 5.2 percent after the results were announced before erasing declines and trading up as much as 4.2 percent during the conference call, as Chief Executive Officer Mark Zuckerberg reassured investors that the downward trend in users isn’t likely to continue.

Here’s a roundup of what analysts are saying about Facebook’s results:

RBC, Mark Mahaney

(Outperform, raises PT to $250 from $230)

Facebook “reported a very strong 4Q, with results coming in well ahead of expectations and growth trends remaining very impressive.”

The company said news feed changes “would likely not negatively impact ad rev growth. That’s our POV too.”

BofAML, Justin Post

(Buy, raises PT to $265 from $230)

“We characterize 4Q as a solid beat.” While content changes “will raise some doubts on Facebook platform content quality and usage, results and commentary suggest Facebook’s financial trajectory is on an even stronger path.”

The company “suggested that changes could actually improve platform monetization with more or higher quality impressions, and that DAU trends should return to normal in 1Q. We think questions will linger on the user experience and slowing user growth, but expect a return of optimism on Facebook’s potential to exceed estimates.”

Morgan Stanley, Brian Nowak

(Overweight, raises PT to $230 from $215)

“Better-than-expected top and bottom line results speak to how early it is in FB’s monetization story. FB remains in control of pace of its monetization while aggressively improving the quality of engagement.”

Facebook’s “investments have enabled it to build leading ad targeting tools and offerings that deliver ad ROI for advertisers. We don’t view this changing.”

Piper Jaffray, Sam Kemp

(Overweight, raises PT to $210 from $200)

DAU declines in the U.S. and Canada and time spent per user user falling about 5% “does not appear to be impacting Facebook’s ability to monetize users, with management suggesting the mix away from viral/national news may even be a tailwind.”

Newsfeed shift is no big deal to revenue. “ARPU growth remained strong in the US and ad impression growth, while continuing to decelerate, is unlikely to be impacted by the shift away from viral video/national news.”

Evercore ISI, Anthony DiClemente

(Outperform, PT $225)

“The time spent foregone as a result of the changes (50m hours/day) monetizes at a much lower rate than Facebook’s core news feed or stories given much of this time is passive video watching.”

Overall, “quarter reaffirmed our bullish outlook on FB’s underlying financial trends in both the near and long term, as results continue to highlight strong ad demand and
industry-leading Ebit margins.”

KeyBanc, Andy Hargreaves

(Overweight, raises PT to $245 from $220)

“While the recent changes to News Feed reduced average time spent by around 5%, they did not impact ad volume or ad effectiveness. As long as Facebook continues to improve its effectiveness, the foundation for strong growth should remain intact, regardless of adjustments to the News Feed algorithm.”

Also sees opportunity for more growth “through greater Instagram monetization, the Watch tab, and messaging.”

Citi, Mark May

(Buy, raises PT to $220 from $215)

“Results came in above our and consensus forecasts, though ad revenue came in below the most bullish expectations. Strong growth and margins coupled with a more optimistic outlook for user engagement and monetization than feared helped sentiment.”

--With assistance from Cecile Vannucci

To contact the reporters on this story: Beth Mellor in London at bmellor@bloomberg.net, Jeran Wittenstein in San Francisco at jwittenstei1@bloomberg.net.

To contact the editors responsible for this story: Arie Shapira at ashapira3@bloomberg.net, Scott Schnipper

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