Facebook Shares Jump on BMO Upgrade Amid Privacy Rule Changes, Easing Antitrust Risk

BMO Capital Markets analyst Daniel Salmon said the risks of near-term antitrust action on Facebook are easing, while its focus on e-commerce and payments integration should boost revenue growth.
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Facebook Inc.  (FB) - Get Report shares jumped higher Tuesday after analysts at BMO Capital Markets boosted their rating and price target on the social media group, arguing a focus on payments and e-commerce will offset new rules on privacy and transparency. 

BMO Capital Markets analyst Daniel Salmon said headwinds to Facebook's advertising revenues, linked to transparency efforts from Apple Inc.  (AAPL) - Get Report that will lead to limits on ad targeting, have peaked and that the social media giant will be able to grow advertiser conversions within the platform rather than from outside signals as it unifies its e-commerce, payments and messaging infrastructures. 

Broader regulatory risk, Salmon said, has also abated, allowing for the boost of Facebook's price target to $325 per share, from $270 per share, while assuming 'robust digital ad spending' to continue beyond the COVID pandemic. BMO also lifted its rating on the stock to 'outperform'.

"Antitrust and political risk remain acute, but we see this better baked in after the recent pullback. We believe the events at the U.S. Capitol reinforced our concerns about open social media systems, and along with prior issues like misinformation, hate speech and advertiser boycotts, there continues to be a risk to margins from more “safety and security” spending," Salmon said. "While antitrust proceedings against Facebook are now formal, we think the risk of material action in the next 12 months is relatively low."  

Facebook shares were marked 1.75% higher in early trading Tuesday to change hands at $255.60 each, a move that would nudge the stock's six-month gain to around 4.4%.

"We expect vertical integration of eCommerce (Shops, Payments, Messaging, etc.) and more server to server integrations for the ad business (e.g. reworked Conversions API) to help drive a narrative about FB having greater control over its revenue destiny," Salmon said. "Antitrust and political risk are still acute (more below), but we think this has been increasingly baked into the stock upon the recent pullback."  

Last month, Facebook criticized Apple’s planned changes related to data gathering and targeted advertising, claiming they will be bad for small businesses

The social media giant said Apple's upcoming changes to its iOS will limit the ability of companies such as Facebook, but also many smaller firms, to gather data about mobile users.