Facebook shares recover as investors shrug off falling usage

Facebook shares recover as investors shrug off falling usage

Facebook Inc shares steadied on Thursday after wobbling in the wake of post-earnings comments by company executives about slowing use and a strategy of not increasing the frequency of ads shown to users.

Facebook shares breached the us$50 mark in heavy premarket trading after at least 10 Wall Street analysts raised their price targets, to as much as $63. The stock has nearly doubled in value this year.

The company reported better-than-expected results on Wednesday, helped by strong advertising revenue. But Chief Financial Officer David Ebersman later said there had been a decrease in daily users, specifically among younger teens.

Ebersman also said the company would not boost the frequency of ads - one per 20 stories in the newsfeed - shown to users.

Facebook's shares soared as much as 15 per cent in extended trading on Wednesday before suddenly falling to US$47.40, down 3 per cent from their US$49.10 close. The stock settled at US$49.16.

Analysts said on Thursday the move to stick to the number of newsfeed ads was likely a right strategy.

"We believe managing ad load is important to maintaining the user experience for the long term," J.P. Morgan analyst Doug Anmuth said in a client note. The analyst raised his price target on the stock by US$9 to US$62.

Facebook's newsfeed ads, which inject paid marketing messages into a user's stream of content, have boosted the company's revenue and its stock price.

But the company has had to be careful not to turn off users with too many ads.

Facebook's third-quarter advertising revenue rose 66 per cent, with mobile ads making up about half of total ad revenue.

"The well-above trend figure provides confidence that growth can continue at a rapid clip," Pivotal Research Group analyst Brian Wieser said in a note, upgrading the stock to "buy" from"hold."

Some analysts said that while early teenagers were ditching Facebook, some were joining Facebook-owned Instagram. This puts the company in a good position to monetise the mobile photo-sharing app, they said.

"We continue to see two major catalysts in Instagram and video ads, which could be FB's next billion-dollar business,"Jefferies & Co analysts said.

According to some reports, Facebook is set to unveil video ads, that are expected to autoplay, in newsfeeds.

UBS raised its price target on the stock to US$62 from US$60, RBC Capital Markets to $60 from $52 and Stifel Nicolaus to US$56 from US$50.


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