Facebook’s Price Target From Morgan Stanley Cut to $170 From $175

Facebook (FB) received a cut to its price target from Morgan Stanley after the social-network operator reported Q3 earnings per share above analysts’ expectations late Tuesday but missed the Street’s mean estimate for revenue.

Morgan Stanley’s new price target on Facebook’s shares is $170, down from $175. The reduced target is still above the stock’s Tuesday closing price of $146.22 as the firm kept its investment rating on the shares at overweight. The shares rose 5.7% to $154.50 in recent Wednesday pre-market activity.

In a note to clients, Morgan Stanley said Facebook’s Q3 results “highlight how FB’s engagement continues to transition toward lower-monetizing interactions…namely Stories, messaging, Instagram Explore (now a surprising 20% of time spent on Instagram), and video (FB US Watch time up 3X over the last few months).”

It added, “this is creating some near-term monetization headwinds — with Stories monetizing at an estimated [approximately] 30% lower rate than News Feed, messaging/video monetization still de minimis and Instagram Explore still without any ads.”

However, the firm said it sees the resulting revenue uncertainty “as more of a temporary transition — that admittedly is likely to take multiple quarters — rather than a permanent impairment.”

It added: “While the engagement transition creates increased revenue uncertainty, we remind investors, that 1) FB has shown an ability to innovate and drive engagement and monetization and 2) all players in the ecosystem (FB/advertisers/agencies) are vested in solving the riddle of how to monetize these emerging forms of consumer engagement.”

After Tuesday’s market close, Facebook reported Q3 EPS of $1.76, up from the year-earlier period’s $1.59 and above analysts’ mean estimate according to Capital IQ of $1.45. Total revenue rose to $13.73 billion from $10.33 billion a year earlier, but missed the Street’s mean estimate of $13.82 billion.

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