Despite Facebook Sell-Off, KeyBanc Still Sees Long-Term Opportunity In Stock

Facebook, Inc. FB reported second-quarter results Wednesday that initially sent shares plunging, but KeyBanc Capital Markets is encouraging investors to buy the dip. 

The Analyst

KeyBanc's Andy Hargreaves maintained an Overweight rating on Facebook with a price target lowered from $245 to $215.

The Thesis

Facebook's Q2 report revealed multiple concerning metrics, Hargreaves said in a note. (See the analyst's track record here.)

They include:

• Global daily active user and monthly active user growth of 11 percent missed estimates by 1 percent.
• European users declined sequentially from GDPR opt-outs.
• Ad revenue of $13.04 billion missed expectations of $13.3 billion.
• Costs and expenses remain significant amid ongoing investments in security and safety.

Facebook issued "surprisingly bad" guidance for the back half of 2018 for multiple reasons, perhaps most notably the social media company's decision to prioritize Facebook Stories as the future of its platform, Hargreaves said. Facebook Stories is unlikely to have a significant ad load at first, and the News Feed is likely to become a "passively engaging and volatile product," he said.

KeyBanc projects that Facebook's near-term growth profile will be challenged as a result. 

The silver lining to Facebook's report is that its management has already found success in deploying Stories on its Instagram platform, Hargreaves said. The company is also backed by data, scale and capabilities that reinforce the bullish case over the long term, he said. 

Price Action

Facebook shares were trading down 18.48 percent to $177.31 off the open Thursday. 

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