Here’s why Morgan Stanley is ‘most positive’ on Facebook stock

Morgan Stanley analysts reiterated Facebook Inc (NASDAQ: FB) as their favourite in the league of large-cap social media stocks. In a Friday note, they said the Menlo Park-based company’s focus on investments and monetisation will help sustain strength in the post-pandemic world. Morgan Stanley said:

“We remain most positive on FB within the large-cap social media names as we see their leading ROI, product innovation, and monetisation call options (Reels, Marketplace, Shopping, etc.) enabling them to navigate through difficult near-term engagement headwinds.”

Ad growth will help Facebook offset engagement drop-offs

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According to Morgan Stanley, the engagement drop-offs will be further offset by ad growth in the upcoming months.

“We also note that even a slight increase in News Feed ad load could offset any engagement decline. In our view, the extent to which FB can deliver on topline can lead to $16+ of free cash flow per share next year, painting a path toward our $440 bull case (~30% upside),” they said.

As people continue to get vaccinated across the globe, time spent on social media is likely to go down. To beat market estimates in its fiscal Q2, therefore, Facebook must focus on innovation and ad pricing/ROI to fuel ad growth, said Morgan Stanley.

“It will be increasingly important for social platforms to continue to develop products (social shopping, short-form video, maps, etc.) that drive engagement and deliver measurable ad ROI directly linking ad dollars to transactions. It isn’t a new dynamic but has increasing importance in order to meet or beat forward estimates,” the analysts added.

Facebook’s latest AI detects fake deeps

In related news, Facebook said on Friday it worked with the Michigan State University to develop a new AI system that successfully detects deep fakes.

Facebook opened more than 0.5% down in the stock market on Friday and tanked another 1% later on. Including the price action, it is now exchanging hands at $331 per share (£239.40 per share). This compares to a much lower $269 per share at the start of the year.

Facebook gained more than 30% in the stock market last year. At the time of writing, the American multinational has a market cap of about $942 billion and a price to earnings ratio of 28.45. Last week, Facebook’s Vice President of Global Marketing Solutions, Carolyn Everson, announced her departure from the company.