Facebook Investors Appear To Heed Warnings About Privacy Headwinds, Analysts Say Keep Buying

Facebook Inc. FB keeps warning about looming headwinds for its stock because of concerns about how it deals with users' privacy. But Facebook's revenue and user base just keep growing.

Investors appeared to share Facebook's more cautious outlook on Thursday, selling off the stock by more than 6%, seemingly convinced that the privacy issues must surely eventually catch up with Facebook and slow its seemingly unstoppable revenue growth.

Facebook on Wednesday reported yet another quarterly revenue beat despite the ongoing privacy concerns, and again issued cautious guidance about a slowing in revenue growth.

But sell-side analysts, while in some case lowering their estimates, generally continued to urge buying the stock on the lower price and an optimism the company will continue to figure out how to keep the money coming in despite concerns over how it does so.

Facebook reported revenue of $21 billion in the fourth quarter, beating Street estimates, and raked in about $70 billion in revenue for 2019, up more than 25% from the previous year. EPS also beat the Street in the fourth quarter, coming in at $2.56, above the $2.53 estimate.

See Also: Facebook Quick Reaction: Buy The Dip?

The Facebook Analysts

Morgan Stanley's Brian Nowak maintained an Overweight rating on Facebook with a $270 price target.

Wells Fargo's Brian Fitzgerald revised full-year earnings estimates downward and mainted an Overweight rating with a $260 price target.

UBS analyst Eric Sheridan also slightly lowered first-quarter and 2020 revenue and EPS estimates. He maintained a Buy rating and lowered the price target from $250 to $246.

BofA Securities' Justin Post reiterated a Buy rating and lowered the price target from $260 to $250 to reflect lower EPS expectations.

Nomura Instinet's Mark Kelley maintained a Buy rating and $253 target price.

Tigress Financial's Ivan Feinseth continues to recommend a Buy on the stock.

The Takeaways On Facebook

The sell-side hears Facebook's warnings about low-to-single digit percentage revenue growth deceleration ahead due to growing global interest in government privacy regulation. But it's not overly worried.

"Seems like usual FB expectations management to us," wrote BofA's Post. "We think FB has revenue levers to pull, and EPS upside potential on a conservative expense outlook and bigger buybacks."

While the company may need to do more work to "frame the components" of the coming revenue headwinds, it still is likely to deliver strong engagement growth — and to keep figuring out how to change its ad system to stay ahead of the concerns, added UBS analyst Sheridan.

Basically, Facebook still has what investors need, Morgan Stanley's Nowak wrote Thursday.

"Engagement, Monetization, Earnings Power...Check, Check, Check," Nowak said, urging a buy, particularly with the stock having dropped in price.

Same for Feinseth: "I view any weakness from seemingly disappointing guidance as a buying opportunity and believe significant upside exists over the long-term."

Some analysts did lower full-year earnings estimates, but even they said the concerns were minimal.

"While we see some reason for caution in 4Q results and management commentary, we expect ad targeting headwinds will ultimately prove to be relatively modest and believe management's expense outlook is likely conservative," wrote Wells Fargo's Fitzgerald.

See Also: 2 Reasons Why Facebook Is Still A Long

Other Reactions To Facebook's Q4

Nomura's Kelley: the bright spots included increased investment and traction in online commerce and payments, and the board's increase of its buyback by $10 billion. Facebook remains "one of the best positioned digital advertising businesses with more room to expand," he said.

Loup Ventures' Gene Munster and Will Thompson said nvestors don't like the CFO saying that the majority of the regulatory impact "lies in front" of the company.

"Our guess is that these changes will modestly weigh on FB’s multiple in 2020 and revenue growth in 2021."

Facebook Price Action

The stock was trading down 5.93% at $209.98 at the time of publication.