November 22, 2017

FB – Although management’s concerns about margins and growth signal potential near-term headwinds, confidence about ad pricing implies long-term expectations are far too bearish

  • Facebook, Inc. (FB:USA) currently trades at historical highs relative to UAFRS-based (Uniform) Earnings, with a 26.1x Uniform P/E. However, even at these levels, markets are pricing in extremely bearish expectations for the firm, which appear unwarranted given the firm’s robust, stable profitability, and management’s confidence about ad pricing
  • Specifically, although management is confident that significant investments in 2018 will be an operating margin headwind, they are also confident that compared to a year ago, price was the primary driver of ad revenue growth. This confidence, combined with continued fundamental momentum, suggests FB will likely continue to outperform bearish market expectations, which would support longer-term upside
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