<table><tr><th>From:</th><th>Richard Kahn &lt;</th></tr><tr><td>Sent:
To:</td><td>Thursday, February 2, 2017 2:27 PM
jeffrey E.</td></tr><tr><td>Subject:</td><td>Fwd: FB US: Facebook: Price Objective Change - Beat and raise, and more raises likely
if expense pattern holds - BUY - United States</td></tr></table>

Facebook Stock

own 17,500 shares from =nbsp;IPO 5/17/2012 at 538 per share stock =remarket 133.5 unrealized gain 1,671,250 position value 2,336,250

Richard =ahn
HBRK Associates Inc.
575 Lexington =venue 4th Floor
New York, NY 10022
tel
fax
cell =

Begin forwarded message:

From: =/b>"Ens, Amanda" <

Subject: =/b>FB US: Facebook: =rice Objective Change - Beat and raise, and more raises likely if =xpense pattern holds - BUY - United States

Date: =/b>February 2, 2017 at 9:06:14 AM =ST

To: =/b>"Rich

Reply-To: =/b>"Ens, Amanda" <

Global Research

Facebook

Beat and raise, and more raises likely if =xpense pattern holds

Reiterate Rating: BUY

PO: 165.00 USD I Price: 133.23 USD

Equity | 02 February =017

## Key takeaways

=/span>Strong 4Q beat with positive user =etrics across the board. User growth should soothe potential =ompetitive concerns.

• =/span>Raising estimates, but more room =o go with 2H upside potential on pricing, GDP acceleration, and cost =iscipline.

• =/span>Raising non-GAAP EPS by 6% in =017E and 2018E; raising PO to $165 (24% upside) on 24x non-GAAP EPS and =7x GAAP EPS.

FULL REPORT

## Key takeaways (cont.)

Clean beat; with revenue =pside offsetting higher '17 spend

Revenue/EPS of =8.81bn/$1.41 was well above the Street at $8.51bn/$1.31. Advertising =evenue growth ex-FX decelerated 560bps vs 3Q to 54% (on a 900bps =ougher comp), but was better than the 48% we had modeled. User and =ngagement metrics exceeded our expectations yet again driven by =ontinued Instagram momentum and video. =he 2017 expense and capex outlooks were higher than expected, but =trong revenue trends more than offset, and the outlook leaves room for =PS upside over the next three quarters.

No signs of Snap =rosion; strong user growth

User growth metrics exceeded our =xpectations, with MAUs up 17% y/y to 1.86bn (est. 1.83bn) and DAUs up =8% y/y to 1.23bn (est 1.21bn). DAU/MAU =eld at 66%, unchanged from the prior three quarters. Management =ndicated that overall sharing on the platform is up y/y, and Instagram Stories traction (150mn DAUs in first =ive months) should help alleviate concerns of time share loss to =merging competitors like Snap.

Raising FY17E EPS 6% =espite higher expense forecast

Management =rovided 2017 non-GAAP expense forecast for 47-57% growth vs our =stimate for 41%, though close to the 45-55% forecast we anticipated. We =re increasing expense growth to 47%, but still raising estimates =eaningfully on the stronger revenue. We raise 2017E revenue and =on-GAAP EPS to 538.55bn/55.67 from $36.7bn/$5.34 and 2018 to =48.88bn/$7.01 from $45.91bn/$6.59. Our GAAP EPS in 2018E is $6.02, only = 14% discount to non-GAAP, aided by a lower tax rate from new SBC =ccounting.

Growth and competitive =osition intact; raising PO to $165

Post quarter we think the Street will =ave more confidence in Facebook's =ompetitive position given the strong engagement and user growth =etrics. While we would have liked to see more pricing growth (up 3% =/y), we are still optimistic about acceleration potential in 2H17 as =upply growth moderates and newer ad formats continue to ramp (video, =ynamic product). Moreover, we see potential for EPS upside on better =ost discipline (see Chart 1for guide vs actual history). We are =aising our PO to $165 from $150 based on 24x 2018 non-GAAP EPS or 27x =AAP EPS, in-line with expected growth.

Justin Post <
Research Analyst
MLPF&S

## Key takeaways (cont.)

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## Key takeaways (cont.)