Facebook (FB) Gets a New $480 'Street High' PT from Credit Suisse as Q2 Expected to Yield Benefits From Continued Budget Recovery

July 23, 2021 9:07 AM EDT
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Credit Suisse analyst Stephen Ju hiked the price target on Facebook (NASDAQ: FB) to a "Street High" of $480.00 per share from $400.00 as the analyst expects product offerings across all parts of the funnel to continue to level up.

“As Facebook (and the broader online ad industry) continues to benefit from budget recovery for 2Q21, our focus shifts back to offense and product development. We believe the investment thesis boils back down to the conversion of its merchants/business profiles into paying advertisers. At the time of its last disclosure (3Q20), the core Facebook app had 200mm business profiles and 10mm advertisers, while Instagram had 4mm advertisers. From a near-term tactical perspective, our conversations with advertisers continue to suggest ad budget recovery across most sectors – we maintain our FXN YOY ad revenue growth estimate of ~50% for 2Q21 and +34% FXN YOY for 3Q2,” the analyst said in a note sent to clients.

The analyst has reiterated an “Outperform” rating based on three key factors:

  1. Potential for better-than-expected ad revenue growth on product innovation (Facebook Shops, Search in Marketplaces, etc.);
  2. Street models are too conservative and underestimate the long-term monetization potential of other billion-user properties like Messenger and WhatsApp; and
  3. Optionality for faster FCF growth on greater efficiency on content screening/security costs.

On the impact of identifier for advertisers (IDFA) from Apple’s iOS 14 changes, Ju comments:

“Our checks indicate that this could exert a low-single-digit percentage headwind to 2H21 ad budget growth rates, particularly as iOS update rates continue to climb. As we have noted previously, advertising one channel versus another is a relative consideration. And as the deprecation of IDFA should exert pressure all around, the only relevant consideration in our view is the ROAS gap between Facebook and other platforms, which has not really changed. We hence believe the case remains for the company to gain wallet share throughout this transitional period,” the analyst added in a memo.

Facebook share price is up 2.6% in pre-open after both Twitter and Snap delivered better-than-expected Q2 results.

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