Are Facebook Ad Controversies Over?

Credit Suisse analysts Stephen Ju and Christopher Ford analyzed Facebook Inc FB's earnings potential in a note Wednesday.

During fourth-quarter 2016 and first-half 2017, investors were worried about the deceleration of ad load growth, but after the company posted two consecutive quarters of ad price acceleration, Ju and Ford believe these concerns are well behind us. They decided to increase their price target for the stock from $190 to $235 based on an increase in mobile news feed estimates and have also increased their full-year 2017 EPS from $5.62 to $5.73. Credit Suisse research team has an Outperform rating for the stock.

Ju and Ford believe that Facebook is going to be able to drive long-term revenue growth without a material lift in ad loads. They also think the Wall Street is underestimating the long-term monetization potential of upcoming new products like Graph Search. In their investment model, the analysts decided to move the Graph Search revenues from 2018 to 2019. They estimate income from Watch is going to start in the first quarter of 2018, and they think it will have a lower margin than Facebook's other advertising business, but it is incremental free cash flow.

The risk for Ju and Ford's estimates is the slower than expected advertiser adoption, either on a product-by-product basis or regional basis for Facebook's ad units. Their price target of $295 is based on a discounted cash flow model and it is estimated for the end of 2018.