Analyst Note| Ali Mogharabi |
We are increasing our fair value estimate of Facebook to $407 from $390. The firm reported better than expected second quarter top- and bottom-line results driven by user growth and growing monetization. Economic recovery continues to drive higher ad spending, a big chunk of which is allocated to Facebook and its properties. We are pleased with Facebook’s continuing enhancement of its platforms as it improves e-commerce functionality, increases video content, and introduces more audio content, which support the firm’s network effect moat source on the user and advertiser sides, increasing overall ad inventory. Facebook is also investing in innovation for the long-run, including Metaverse, which we view as the next stage of growth and development in virtual reality. While Metaverse is likely to require more interoperability between many platforms and may slowly erode Facebook’s walled garden, the firm’s current network effect moat source should maintain more users on the Facebook side of the Metaverse.