The firm boosted its target on FB from $148 to $158. That new target suggests a 22% upside to the stock’s Friday closing price of $129.07.
Citi analyst Mark May commented, “In recent months investors have grown concerned about the possible slowdown in ad load growth and the potential threat posed by Snapchat on Facebook’s user and user engagement growth. We analyzed these concerns by stress testing key underlying Facebook model assumptions and concluded that Street forecasts not only appear reasonable but also potentially conservative.”
Much of the concerns with Facebook center on “ad load,” which refers to the amount of advertisements a company can squeeze onto one web page or within an app. The company admitted its ad load will top out next year.
Still, Citi expects ad load to potentially grow significantly more than the single digit growth needed for FB to hit lofty earnings expectations. The firm also expects strong overall user engagement growth for 2017, 2018 and 2019, of 0.9 percent, 0.5 percent and 0.6 percent, respectively.
So while Facebook continues to face increased competition from Snapchat and other social media and messaging upstarts, Citi believes there’s little for investors to fear.
Facebook shares rose $0.63 (+0.49%) to $129.70 in premarket trading Monday. Year-to-date, FB has gained 23.32%, more than five times the return of the S&P 500 during the same period.