Facebook spending on messaging, wearables seen fuelling growth

Reuters News
|
Posted: Jul 30, 2015 9:38 AM

(Reuters) - Facebook Inc's <FB.O> plans to focus spending on its two messaging services, Instagram and its virtual reality headset business was cheered by Wall Street analysts, who said the efforts would boost long-term growth.

Of the 50 brokerages covering the stock, at least 20 raised their price targets. Piper Jaffray was the most bullish with a $146 target - 50 percent over Facebook's Wednesday close of $96.99. The median price target is $110.

Investors, however, adopted a more cautious view of Facebook's spending plans, which will eat into future profits, sending the stock down 1.6 percent to $95.40 in early trading.

Facebook, the world's largest social network, reported a 9 percent fall in second-quarter profit on Wednesday. The company also said it expects ad revenue growth to continue to slow for the rest of the year.

But its monthly active users hit 1.49 billion globally as of June 30, up 13 percent from a year earlier.

"We believe the commentary on its face may have raised red flags to some investors, but it may have been misinterpreted as more negative than intended," Piper Jaffray analyst Gene Munster said in a note.

Munster and other analysts said Facebook's investments, particularly in newer initiatives such as video, photosharing app Instagram and messaging services Facebook Messenger and WhatsApp, will drive long-term growth.

"While newer initiatives may have a less pronounced impact on near-term revenue growth, we believe management's focus on optimizing the user experience will bear significantly more financial fruit long term," said Baird analysts.

Baird raised its price target to $110 from $96.

Wall Street is overwhelmingly bullish on Facebook - only one analyst a "sell" rating on the stock.

(Reporting by Tenzin Pema and Abhirup Roy in Bengaluru; Editing by Sayantani Ghosh)