Morgan Stanley Isn't Too Worried About Facebook Cutting Ties With Third-Party Data Providers

Facebook, Inc. (NASDAQ: FB) will no longer partner with third-party data providers, which does raise concern among investors but checks with multiple agencies and advertisers reveal encouraging data points, according to Morgan Stanley.

The Analyst

Morgan Stanley's Brian Nowak maintains an Overweight rating on Facebook's stock with a price target lowered from $230 to $200.

The Thesis

Facebook historically counted on third-party data providers to improve targeting, efficiency, ad performance and pricing, Nowak said in a research report. There are also four key reasons severing ties with third-party entities is not only "manageable," but smart for the social media company.

• Facebook is operating at a position of strength with a lack of a notable competitive platform;
• It's unclear what percent of Facebook ad buys employed third-party tools in the first place;
• Alternative options will still be available for advertisers to target Facebook users; and
• Advertisers are more likely to shift to using their own first-party data when buying ads on Facebook.

Nowak said first-hand checks with eight different agencies and advertisers found no signs of "any material reduction" in ad spend on Facebook's platform.

Facebook's stock faces some near-term potential catalysts, such as co-founder and CEO Mark Zuckerberg speaking in front of the Senate Judiciary Committee April 11 as well as its first quarter earnings report scheduled for April 25.

Estimate Changes

Nowak took a more conservative stance and revised expectations lower:

• 2018 total revenue from $56.81 billion to $55.89 billion;
• 2018 advertising revenue from $56.02 billion to $55.1 billion; and
• 2018 EPS from $7.24 to $6.95.

Price Action

Shares of Facebook were trading lower by 2 percent at $152.85 in Wednesday's pre-market session.

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