Facebook shares fall on spending plans

Facebook’s shares fell as much as 7.4% to $74.78 in early trading yesterday, a day after the company revealed aggressive spending plans for 2015.

But analysts were taking a more upbeat view, saying the heavy spending will drive long-term growth and reinforce the social networking giant’s market dominance. No brokerages cut their recommendation on the company following the release of its third-quarter results, and several said the price decline represented a buying opportunity.

At least 15 brokerages cut their price targets on the stock, by as much as $8 to as low as $78, mainly to reflect the company’s expense and revenue outlook.

“FB delivered another strong quarter and is very well-positioned in an increasingly mobile and social internet landscape, and to be clear, FB is investing into strength and future growth opportunities,” JP Morgan Securities analysts said.

JP Morgan rates Facebook “overweight”, with a price target of $85, down from $90. Facebook, which reported stronger-than-expected quarterly revenue, projected a 55%-75% increase in spending in 2015 for investments that will eat into its near-term profit. The company’s costs and expenses rose 32% in the first nine months of the year.

“Comparable investment of the scale that Facebook is contemplating can only be achieved by them or by Google... We see further investment reinforcing their relative dominance in digital advertising for years to come,” Pivotal Research analysts said.

Facebook has spent billions to buy fast-growing companies such as WhatsApp, Instagram, and Oculus as it tries to boost its reach, especially among the young.

Facebook’s shares have risen almost 50% since the start of the year. “While the shares aren’t exactly ‘for sale’ we are buyers of this dip,” RBC said.

Reuters