Morgan Stanley's Social Media Valuations Now Look Less Overvalued Than Peers

Social media has been a game changer for society. Whether the change will have been a net positive or a net negative remains to be seen, but the companies behind social media are incredibly powerful, despite the current concerns about them. In a world where millions upon millions of people are now either shut in their homes or unable to afford to do much outside of their homes, social media has a lot of playtime, with or without the controversies.

Morgan Stanley raised its price targets on social media leaders in a new batch of calls from Thursday. Some of the price target hikes look significant, even though most of the ratings at not Overweight, which would imply a “Buy” at other firms.

One interesting aspect is that all the calls, along with consensus analyst estimates in general, seem to indicate that the social media leaders are close to or even above their fair value. That said, no single analyst call should ever be used as a sole basis for buying or selling a stock.

Facebook Inc. (NASDAQ: FB) has seen a wave of advertisers pull their advertising efforts for the rest of 2020, and the leader in social media also has faced criticism from activist groups for not adequately policing fake news and hate speech, as well as for addressing concerns of many employees.

Morgan Stanley reiterated its Overweight rating on Facebook and raised its target price to $270 from $230. The firm’s Brian Nowak already had defended Facebook, noting a call to buy on any weakness tied to the recent pressure. That had been based on the notion that Facebook’s top 100 advertisers were also less than 20% of revenues, and many other advertisers will be happy to step in and take the place of the firms boycotting Facebook. Nowak also maintained that boycotts and activist pressure could create tactical pressure on the company.

With shares at $243.58 ahead of Thursday’s 1% drop to $241.12, Morgan Stanley’s new $270 price target is handily above the $247.07 Refinitiv consensus price target. Facebook shares went as low as $215 during the boycott efforts, but the stock price has recovered handily despite the headlines.

Pinterest Inc. (NYSE: PINS) was reiterated as Equal Weight, but its price target was raised to $26 from $25 in the call. The shares were trading at $26.89 on Thursday, in a 52-week range of $10.10 to $36.83 and with a $21.50 Refinitiv consensus target price. Pinterest has a market cap of nearly $16 billion.

Snap Inc. (NYSE: SNAP) may not really be the “camera company” that it wanted to portray itself as in its initial public offering documents, but the company has a $37 billion market cap, and its shares hit a 52-week high before pulling back on Thursday. Snap was maintained as Equal Weight and its target was raised to $25 from $13. The consensus target price was $20.04 before this call.

Twitter Inc. (NYSE: TWTR) has not been without its own controversy, despite a $27 billion market cap. CEO Jack Dorsey faces some criticism similar to what Mark Zuckerberg faces. Morgan Stanley’s Equal Weight rating came with a target price raised to $32 from $24. the shares were last seen closer to $35.00, in a 52-week range of $20.00 to $45.86 and with a consensus target price of $30.36.

One positive for Facebook is that its WhatsApp user base has grown 10 fold in the past 18 months or so, and it is adding features to allow users to chat directly with businesses. Facebook also is looking to get more e-commerce and site hosting revenues from helping millions of small businesses further develop their online capabilities, now that the economy has changed so much. Prior in-app purchase efforts for major brands also could be rolled out in a much more significant effort.

Whether these stocks are overvalued now remains to be seen, but the recovery in the shares from earlier lows in 2020 have been nothing short of very impressive.