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Morgan Stanley on Facebook: Innovation Could Drive Its Revenues

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Morgan Stanley on Facebook

Morgan Stanley (MS) included Facebook (FB) in its top four Internet stock picks. The investment firm believes the online advertisement market has huge potential.

With respect to Facebook, Morgan Stanley wrote that the firm was “positive on FB’s ability to continue to innovate and improve its monetization (Canvas Ads, Dynamic Ads, video) … combined with high and growing engagement we see monetization upside going forward.”

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The continuing innovation in the market appears to be a positive sign for the stock. Billionaire investor Warren Buffett stated in February 2017 that the US economy (VFINX) (SPY) (QQQ) has huge potential to experience stronger growth. He believes that productivity and continued innovation could drive economic growth (IWM) (IVV).

The growing online advertising business is the other important factor for Facebook, which has the potential to acquire an expansive customer base. Its addressable market is much larger. Morgan Stanley expects a target price of $165 for Facebook (FB) and is overweighting the stock. The investment firm expects a 15% upside for Facebook from its April 21, 2017, closing price of $143.68.

Facebook’s performance

Facebook is currently trading at $146.56. Its 52-week high is $147.59, and its 52-week low is $106.31. On a YTD (year-to-date) basis, the stock returned 25.4% on April 26, 2017. The stock has returned nearly 86% over the last two years, and it’s currently trading at a price-to-earnings multiple of ~42.0x.

The Technology Select Sector SPDR ETF (XLK), which tracks the performance of the technology sector, returned nearly 10.7% on a YTD basis on April 26, 2017.

In the final part of this series, we’ll analyze Morgan Stanley’s view on Priceline.

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