Facebook: Fake News, Fake Metrics, Real Buyback

The board of Facebook Inc (NASDAQ: FB) has authorized share buyback worth $6 billion, beginning in 2017.

Deutsche Bank’s Lloyd Walmsley maintained a Buy rating on the company, with a price target of $150.

“Facebook filed an 8-K announcing its Board approved the repurchase of up to $6.0B of Class A shares beginning in 1Q17 with no expiration,” Walmsley mentioned.

The analyst views this announcement as a positive, in addition to Facebook’s plan to switch to net share settlement of stock options, which would also help reduce dilution.

Walmsley believes the recent pullback in the stock presents an attractive opportunity to add positions in Facebook, especially given that the company is expected to grow its top and bottom line at 30 percent in 2017, “with plenty of levers left around near and long term growth.”

The share buybacks are expected to by 1.5 percent accretive to the company’s EPS when fully executed.

“We see the buyback as a strong statement from the Board that it intends to manage capital with discipline,” the analyst stated.

Walmsley believes the company’s free cash flow generation and balance sheet support larger share buybacks over time.

Fake Metrics, Fake News

The analyst believes the recently announced CA resignation was unrelated to the miscalculated engagement metrics.

Walmsley sees both these as non-events, “given advertisers buy to ROI and no key metrics directly driving ad revenue have been impacted.”

In addition, the analyst sees the reports regarding the fake news as overblown and expects it to fade over time, without having any significant impact on engagement.