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Facebook shares hit all-time high after Wall Street analysts say strong ad pricing to trump news feed drag

  • Wall Street analysts are optimistic over Facebook's ad pricing growth.
  • The social media giant reported better-than-expected fourth-quarter earnings and sales.
  • Facebook's average ad pricing rose 42 percent year over year in the quarter versus 35 percent growth in the previous quarter.

Wall Street is cheering Facebook's surging ad pricing growth, while downplaying any negative impact from the company's recent news feed changes.

The shares gained 3.9 percent Thursday, hitting a new all-time high.

The social media giant on Wednesday reported better-than-expected fourth-quarter earnings and sales. Facebook revealed that changes it made to news feed, including a crackdown on low-quality viral videos, reduced the amount of time users spent on its network by 50 million hours a day in the quarter or 5 percent.

KeyBanc Capital Markets reiterated its overweight rating for Facebook shares, citing the company's dominant position in the digital ad market.

"News Feed changes do not impair the power of the platform. Facebook offers reach, targeting, and ad-unit quality that is difficult to match, and they are the underlying drivers of its growth," analyst Andy Hargreaves wrote in a note to clients Wednesday. "As long as Facebook continues to improve its effectiveness, the foundation for strong growth should remain intact, regardless of adjustments to the News Feed algorithm."

Hargreaves raised his price target for Facebook shares to $245 from $220, representing 31 percent upside from Wednesday's close.

One Wall Street analyst said the company is still in the early innings of increasing its profit streams.

"Better-than-expected top and bottom line results speak to how early it is in FB's monetization story," Morgan Stanley analyst Brian Nowak wrote in a note to clients Thursday. "In our view, FB remains in control of the pace of its monetization even while aggressively improving/refining the quality (not quantity) of engagement on its platform."

Nowak reaffirmed his overweight rating and increased his price target for Facebook shares to $230 from $215.

Credit Suisse believes Facebook can continue to raise its ad pricing. Facebook's average ad pricing rose 42 percent year over year in the fourth-quarter versus 35 percent growth in the previous quarter.

"The key driver of the offsetting ad price growth acceleration is the increasing propensity among advertisers to buy on a more targeted basis," analyst Stephen Ju wrote in a note to clients Thursday. "We believe there remains a significant amount of room for ad price inflation to continue and therefore offset any potential changes to engagement."

The firm reiterated its outperform rating and raised its price target for Facebook shares to $240 from $232.

Facebook shares have outperformed the market in the past year. Its stock is up 40 percent in the past 12 months versus the S&P 500's 24 percent gain.