Facebook Stock Still Has 'Lots Of Levers' In 2016, BofA Proclaims

• Facebook Inc FB shares are up 14 percent in the last three months, even after hitting a low of $86.67 on September 29.
• BofA Merrill Lynch’s Justin Post reiterated a Buy rating on the company, while raising the price objective from $125 to $130.
• Post enumerated four levers that Facebook could pull to benefit in 2016.

Analyst Justin Post mentioned the strengths of Facebook as its strong engagement, with around 65 percent users accessing the platform daily, its multi-app mobile position, and the monetization opportunity, with the platform capturing 8 percent of total media time. Post added that Facebook’s valuation is “more attractive and defensible” than social media peers.

The price objective has been raised to reflect a rolling forward of the basis to the 2017EPS estimate. The analyst mentioned that the upside case is $145 and downside case is $80.

Post said that Facebook has a number of levers that it can pull, and deliver upside to the BofA and Street estimates for 2016. These levers include:

1. Improved targeting and new ad formats
2. Rollout of more video ads
3. Instagram monetization
4. Managing opex

Post elaborated that 2016 should witness an Instagram ad ramp, with revenues from this platform estimated at $1.1bn for the year. Growth in ad pricing could exceed the current 15 percent estimate, on the back of improved targeting, new ad formats and ad format changes.

The other catalysts include continuing momentum in video usage and ads growth, increase in positive sentiment driven by new product announcements for search, Messenger, WhatsApp and Oculus as well as the opportunity to benefit from Olympic and political usage and ad spend, the analyst commented.