Cautious Facebook Guidance Scares Investors More Than Analysts

Shares of Facebook (FB) are sliding after the company reported better than expected first quarter results but reiterated its prior warning about its expectations for revenue deceleration and expense ramp, which appears to be making investors nervous. However, most Wall Street analysts remain bullish on the social media giant, with many raising their targets on the shares this morning.

RESULTS: Last night, Facebook reported first quarter earnings per share of $1.04 and revenue of $8.03B, above consensus expectations, and announced ad revenue of $7.86B. The social media giant also said that mobile advertising revenue represented approximately 85% of advertising revenue for the first quarter of 2017. Speaking during the company's earnings conference call, Facebook CFO Dave Wehner again reiterated caution on ad revenue growth rates, stating: "we continue to expect that our ad revenue growth rates will come down meaningfully over the course of 2017. We expect that ad load will play a less significant factor in driving revenue growth after mid-2017. We also expect desktop ad revenue growth rates to slow in Q3 when we begin to lap our efforts to limit the impact of ad blockers."

ANALYSTS UP TARGETS: In a post-earnings note, Piper Jaffray analyst Samuel Kemp raised his price target for Facebook to $165 from $160 and reiterated an Overweight rating on the name. Continued penetration of Instagram stories and increasing per user time spent across each Facebook property highlight the ongoing strength in engagement despite rising engagement at Snapchat (SNAP), Kemp argued. His peer at Deutsche Bank voiced a similar opinion, raising his price target on Facebook's shares to $185 from $180. Analyst Lloyd Walmsley told investors that he feels better about ad growth prospects in the second half of the year despite strong pricing growth, a reduction in newsfeed inventory to promote video, and strong trends in APAC and RoW. Further, the analyst sees "strong engagement" likely to continue and expects shares to continue to rise. He reiterated a Buy rating on the stock. Meanwhile, JPMorgan analyst Doug Anmuth upped his price target for Facebook to $182 from $170, keeping an Overweight rating on the shares, saying that the company continues to show a "rare and impressive" combination of scale, growth and profitability. Moreover, the analyst pointed out that Facebook is investing into some "major long-term growth opportunities" from a position of strength, ramping up investments in R&D headcount, video content and overall infrastructure. As part of its video and camera-first focus, the company is pushing harder on video both in the Facebook News Feed and the new video tab, Anmuth contended, adding that he would buy the shares on any near-term weakness. Additionally, Jefferies, Oppenheimer, Citi, Cantor and Cowen raised their price targets for Facebook to $192, $170, $175, $180 and $170, respectively, keeping Buy-equivalent ratings on the name.

READ-TROUGH FOR SNAP: In a research note of her own, Needham analyst Laura Martin noted that Facebook reported a "strong" first quarter, handily beating her upwardly revised estimates. The analyst told investors that she believes that digital markets are "winner-take-most" markets and that Facebook is the winner in mobile ad markets. Martin also pointed out that she sees negative read-through for Snap, as Instagram reached 700M monthly active users and WhatsApp added 200M thanks to adopting many of Snapchat's features. She reiterated a Buy rating and $165 price target on Facebook's shares.

PRICE ACTION: In morning trading, shares of Facebook have slipped about 1% to $150.64. Meanwhile, shares of Snapchat's parent, Snap Inc., are up 5% to $22.98. Snap is scheduled to report earnings for Q1 on May 10 after the close.