Facebook's (FB) strength in capturing advertising dollars is keeping analysts on board amid its recent steep stock slide into Tuesday's earnings release.
"Despite headwinds from stricter regulation and negative headlines, our conversations with marketers suggest it remains a must-buy for advertisers looking to reach specific audiences at scale, while generating attractive ROI," SunTrust analyst Youssef Squali wrote in an earnings preview note.
He added that the company still has room to grow given the room that remains for development.
"Facebook is still in its early growth phase, in our view, and given its enormous reach and time spent statistics, coupled with relevance, targeting, and social context, we believe the company will capture a disproportionately high percentage of brand ad dollars over the next 2-3 years," he said.
Squali set a $200 price target and a "Buy" rating for the stock on the basis of his continued confidence in incoming ad dollars. The company's shares were up less than 1% to $143.30 as of 12:30 p.m. ET on Tuesday.
Instagram is Integral
Squali also pointed to Instagram and Messenger as key diversification efforts that will keep momentum moving forward.
Instagram in particular will come into focus as former Newsfeed curator Adam Mosseri has taken over the product from the recently departed founders of the company. His accession to the role is expected to help drive ad growth for the growing segment.
"Instagram was the fourth most used [advertising] platform behind Facebook, Google and YouTube and continues to have a very positive skew in terms of future spend intentions and ROI perceptions," RBC Capital Markets analyst Mark Mahaney said. "Generally, Instagram results were ahead of all its peers in terms of ROI and future intentions to spend."
According to RBC's survey, 60% of businesses advertising on Instagram plan to increase their spend, 37% plan to maintain it, and only 3% plan to decrease spend.
Mahaney reasoned that Instagram's success can help make up for a slightly decelerating core Facebook ad revenue.
The deceleration in core Facebook does remain a concern, despite the overall "intrinsically positive" results that Mahaney cites.
Amid a spate of negative press coverage this year, RBC's survey reflected diminishing marketer satisfaction with Facebook.
"We know that advertisers must use Facebook's platform to reach potential customers," Jim Cramer's Action Alerts Plus team acknowledged. "However, we also want to see how Facebook's pricing power held up in the wake of Cambridge Analytica, which may have caused a market share shift towards Alphabet (GOOGL) and Amazon (AMZN) ."
"In terms of Future Spend Intentions, when we asked marketers if they plan to increase or decrease their advertising budget on Facebook, 49% of respondents stated they were planning to increase their advertising budgets, the lowest number we have observed since September 2013 - a whopping 5 years ago," Mahaney warned, possibly vindicating the Cramer team's concerns.
Still, a nearly 50% increase is only a down number for a company as dominant as Facebook.
"Similar to Google, we believe Facebook is arguably a required marketing channel, a utility," Mahaney declared. "Proving this is the fact that Facebook now ranks as the most used platform from a budget allocation perspective among the marketers we surveyed."
Given the positive results of his research and expectations, Mahaney set a "Buy" rating for the beleaguered stock and a $225 price target.
According to FactSet data, 9 of 12 analysts publishing research in anticipation of earnings Tuesday evening have set a "Buy" rating while no analyst has suggested selling.
The consensus from 45 analysts surveyed sets a price target $203.96 ahead of earnings, suggesting steadfast confidence in a rebound for FAANG's biggest laggard in 2018.