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Monness Crespi Hardt Downgrades Facebook Citing Diminishing Upside

Monness Crespi Hardt Downgrades Facebook Citing Diminishing Upside - Facebook, Inc. NASDAQ:FB

Facebook Inc FB 2.72% its Q2 results significantly ahead of expectations. Monness Crespi Hardt’s James Cakmak downgraded the rating on the company from Buy to Neutral, saying there seemed to be “diminishing upside to revenue prospects during our projection horizon.”

Facebook’s 2Q16 revenue grew 59.2 percent to $6.44 billion, substantially ahead of the consensus estimate of $6.02 billion. The beat was driven by 63 percent growth in advertising revenue to $6.24B. “Mobile was yet again a bright spot,” Cakmak mentioned, saying mobile ad revenue grew 80.2 percent to $5.24B, accosting for 84 percent of total ad revenue, versus 76 percent in 2Q15.

Reasons For Downgrade

Cakmak enumerated the reasons for a rating change as:

  1. Impressions and pricing: Pricing growth did improve quarter-over-quarter to 9 percent. The analyst stated, however, that there was lack of clarity whether “any momentum in a mix shift to mobile is sufficient to offset pressures to impression growth as gains from greater ad load moderates.” He added that ad pricing on a like-for-like basis could also slow.
  2. Capex: Facebook’s video first approach could increase capex costs related to building the infrastructure necessary to support streaming, thereby impacting FCF
  3. Emerging opportunities: While expressing optimism regarding opportunities for Messenger, Oculus, VR/AR, and search, Cakmak commented that “material incremental monetization may take longer than expected.”
  4. Valuation: This may be a time to take some profits.

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DateFirmActionFromTo
Jul 2016Credit SuisseMaintainsOutperform
Jul 2016Goldman SachsMaintainsBuy
Jul 2016Morgan StanleyMaintainsOverweight

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