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Stock Analyst Update

Facebook Looks Fairly Valued After Strong Quarter

We’re boosting our fair value estimate for wide-moat Facebook, but don’t see the shares as a bargain.


 Facebook’s (FB) fourth-quarter results came in ahead of consensus and our expectations with strong revenue growth and impressive year-over-year operating margin expansion. Continuing growth in the firm’s monthly average users, or MAUs, and average revenue per user, or ARPU, displayed that Facebook remains the unquestionable leader within the social networking space, supporting our wide-moat rating on the company. 

Management reiterated its guidance of further revenue growth deceleration in 2018. We note that in our view this may be partially offset by stronger growth in ad prices due to the firm’s recently implemented changes to its News Feed. Facebook is also expecting significant increase in capital expenditures along with expense growth outpacing revenue growth in 2018. 

After taking into account Facebook’s strong 2017 results, higher projections, slightly lower effective tax rate, and time value of money (as we rolled our model forward), we increased our fair value estimate of Facebook to $198 per share, from $163. We currently view Facebook shares as fairly valued.

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Ali Mogharabi does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.