Facebook's Q4: Were News Feed Fears Overblown?

Despite notable changes to the platform's news feed, Facebook Inc FB's investors have little reason to be concerned, according to William Blair. 

The Analyst

William Blair's Ralph Schackart maintains an Outperform rating on Facebook's stock.

The Thesis

Facebook's CEO Mark Zuckerberg may have initially surprised investors with an announcement of changes to the news feed on the core Facebook app, Schackart said in a Wednesday note. (See the analyst's track record here.) 

The news feed will become optimized for "time well spent" and focus on content that drives participation, rather than passive content, according to Facebook. 

During Facebook's post-earnings conference call, the company confirmed that changes began last quarter, which may have contributed to a 50-million-hour decrease in time spent on the platform, Schackart said. While this does amount to a decrease in time spent on Facebook daily by 5 percent, the company's longer-term goal is to encourage more interaction among users, which will strengthen the business over time, the analyst said. 

Facebook's daily active users, or DAUs, and monthly active users, or MAUs, did fall short of the Street's estimate in the quarter, but this shouldn't be seen as a concern, Schackart said. The global DAU/MAU metric, used by many investors as a proxy for engagement during the quarter, fell just 20 basis points from the prior quarter to 65.8 percent and remains in-line with recent quarters, he said. 

Over the next year, Facbeook is expected to post upside to the Street's estimates, potentially as a result of management's conservative expense guidance, according to William Blair. Assuming a 15-percent upside to the Street's EBITDA forecast, Facebook's stock would be worth nearly $220 per share, Shackart said. 

Price Action

Shares of Facebook were trading higher by 3.71 percent at $193.83 at the time of publication Thursday morning. 

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