Facebook Earns An Upgrade On Q1 DAU Growth

Facebook, Inc. FB surged Thursday after reporting top- and bottom-line first-quarter beats, with an 8-percent rise in daily active users. The outperformance was enough to draw a bear off the sidelines.

The Rating

UBS analysts Eric Sheridan and Alexandra Steiger upgraded Facebook to Buy and raised their price target from $170 to $240.

The Thesis

The analysts had previously feared the pains that come with change. But by their latest assessment, operating momentum has accelerated to exceed transition risks.

Facebook has outperformed estimates in multiple quarters, and UBS thinks Instagram growth is behind the beats.

“Instagram is now one of the Internet's large scaled digital ad platforms that can sustain growth and operating leverage (even as the platform transitions to Stories/Shopping) for years to come,” Sheridan and Steiger wrote in a note.

Additional upside optionality is seen in message, virtual and augmented reality, and Facebook’s blend of e-commerce and advertising.

On top of that, the analysts consider risks to be better understood and accounted for.

“While concerns will persist about core Facebook maturation, regulatory headwinds and/or safeguarding the platform for a privacy first approach, we think the market now better understands many of those risks (as they dominate almost all of our investor conversations).

Price Action

At time of publication, Facebook shares traded up 8.2 percent at $197.60.

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