Facebook soothes market nerves by vowing to improve user experience
Shares in Facebook jumped 3pc to a record high in early trading yesterday, helping reverse an earlier plunge,.
The tech company's shares rose after it reported an almost 50pc jump in quarterly revenue and promised to focus on users' experience on the social network, easing concerns over falling usage.
At least 13 brokerages raised their price targets on the stock by as much as $35 ($28).
Analysts at BofA Merrill Lynch were most bullish with a $265 price target.
Facebook's earnings report added to recent jitters around the company by saying that at the end of last year time spent by users had fallen by about 50m hours a day. Shares fell more than 4pc in response.
But the verdict from some of the US stock market's biggest houses focused instead on the company's promises to do more to deepen engagement and the quality of content users see on their timelines.
"We applaud FB's moves to improve the 'quality' of the user experience and believe recent News Feed changes are essentially a mechanism for reducing ad load and making the platform more constructive," Canaccord Genuity analyst Michael Graham said.
Facebook said earlier this month it would change its centrepiece News Feed to prioritise what friends and family share, while reducing the amount of non-advertising content from publishers and brands.
Those changes contributed to a fall in quarterly time spent that added up to about 5pc on Facebook and 4pc on its platforms including Instagram.
"We continue to believe that any slowdown in time spent will be compensated for by higher quality time spent, and that any trimming of ad load will be compensated for by higher ad pricing," Mr Graham said.
While the number of daily users in the United States and Canada fell for the first time in Facebook's history, the average price per ad increased 43pc in the quarter.
One reason for the ad dollars to continue to grow strongly through these changes was that Facebook's ad targeting tools and offerings deliver return-on-investment for advertisers, Morgan Stanley analyst Brian Nowak said.
Out of the 46 analysts that cover Facebook's stock, 37 now rate it at "buy" or higher, two at "hold" and two at "sell" or lower. The median price target for the stock was $222.50.
The company's shares traded at $192.48, up more than 43pc in the past 12 months. "The competition has failed to keep pace with Facebook, and we believe that its network effect and large user base all but ensure that it remains the dominant social media platform for the next decade and beyond," said Wedbush analyst Michael Pachter. (Reuters)