Another day, another quarterly report from a technology company that disappointed investors.
Facebook Inc’s shares were set to open about 6 per cent lower yesterday, a day after the company revealed aggressive spending plans for 2015.
But analysts were taking a more upbeat view, saying the heavy spending will drive long-term growth and reinforce the social networking giant’s market dominance.
No brokerages cut their recommendation on the company following the release of its third-quarter results and several said the price decline represented a buying opportunity.
At least 12 brokerages cut their price targets on the stock, by as much as $8 to as low as $78, mainly to reflect the company’s expense and revenue outlook. Facebook’s shares closed at $80.77 on Tuesday.
“FB delivered another strong quarter and is very well-positioned in an increasingly mobile and social internet landscape, and to be clear, FB is investing into strength and future growth opportunities,” JP Morgan Securities analysts said.
The brokerage rates Facebook “overweight”, with a price target of $85, down from $90.
Comparable investment of the scale that Facebook is contemplating can only be achieved by them or by Google
Of 44 analysts covering the stock, 15 rate it a “strong buy,” 22 a “buy” and seven a “hold”. Nobody rates the stock a “sell”, according to Thomson Reuters data.
The drop in Facebook’s share price follows a now-familiar script this corporate reporting season.
Shares of Amazon.com Inc, eBay Inc, Google Inc and Netflix Inc also fell after the companies failed to live up to investor expectations.
In most cases, their shares have recovered. “We have already seen relatively rapid share price recoveries post Q3 EPS corrections – AMZN up 4 per cent, eBay and Google up 7 per cent, NFLX up 16 percent – so this market is buying beaten-down Net stocks,” RBC Capital Markets analyst Mark Mahaney, who has an “outperform” rating on the stock, wrote.
Facebook, which reported stronger-than-expected quarterly revenue, projected a 55-75 per cent increase in spending in 2015 for investments that will eat into its near-term profit. The company’s costs and expenses rose 32 per cent in the first nine months of the year.
“Comparable investment of the scale that Facebook is contemplating can only be achieved by them or by Google. We see further investment reinforcing their relative dominance in digital advertising for years to come,” Pivotal Research analysts said in a report.