Nomura Instinet Upgrades Facebook, Says More Regulation Will Be 'Net Positive'

Nomura Instinet upgraded Facebook, Inc. FB,  saying the social media platform is transitioning to its new “Stories” format faster than originally thought.

Nomura had downgraded Facebook to Neutral last year, with the sell-side being unconvinced at the time that the new format would come along as quickly as market bulls were expecting. Conversations with company officials and at industry point to Stories being ready sooner, lessening concerns about Facebook.

Stories — rather than the traditional scrolling Facebook feed — are likely the future focus for the company, founder Mark Zuckerberg said on a conference call with journalists back in the fall. 

In the Stories format, Facebook users can share photos or videos with friends or followers, but they disappear after a day rather than remaining archived as part of the user’s feed. The idea is similar to how Snapchat presents its posts. 

The Analyst

Nomura Instinet’s Mark Kelley upgraded Facebook from Neutral to Buy and boosted the target price from $172 to $215.

The Thesis

In addition to its faster-than-expected adoption of Stories as a platform for delivering advertising messages to users, Facebook is also showing better user engagement trends, Kelley said in the Monday upgrade note.

The stock is a good value right now, the analyst said. 

Facebook reported earnings last month that some analysts said were a "blowout," and also touted the addition of 4 million new European users and 1 million new ones in North America , bucking the narrative of late that people are leaving the platform. 

Regulation A Positive? 

Kelley also presented the slightly contrarian notion that the possibility of more regulatory scrutiny for big internet and social media companies in the wake of criticism over privacy issues and “fake news” concerns could actually benefit Facebook.

If regulation eases public concerns, it could help prevent loss of users, he said — but Kelley also noted that the negative impact from news coverage may have already run its course.

“We continue to believe that increased regulation will be a net positive for large platforms like FB, though there could be some headline risk in the near-to-medium term,” the analyst said. “On the whole, we do think the negative headline headwinds have largely been exhausted, with little reaction to negative press as of late.”

Price Action

Facebook shares were up 2.03 percent at $173.04 at the time of publication Monday. 

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