Facebook Inc (NASDAQ:FB) stock edged only slightly higher on Wednesday following a $10 increase in Morgan Stanley’s price target. Analyst Brian Nowak believes the social network will deliver 6% upside to the consensus 2017 revenue estimate and 10% upside to the consensus estimate for adjusted earnings per share. He also thinks concerns that revenue will decelerate materially are overblown and believes they are to blame for the underperformance of Facebook Inc (NASDAQ:FB) stock.

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FB’s ad load growth slows

He notes that investors seem concerned about the slowdown in ad load growth, which is expected to become particularly pronounced in the second half of next year. He is actually modeling about a 50% deceleration in ad load growth for next year, measuring ad load as ads per daily active user per hour. He notes that growth in ad load has been an important growth driver for revenue, and he estimates that ad load will drive about 32% of this year’s ad revenue growth.

He adds that the deceleration he is projecting for next year could be too conservative because other platforms that currently have lower ad loads such as Instagram, Messenger and FAN might start contributing more. Nowak currently expects Facebook Inc (NASDAQ:FB)’s ad load to grow by about 8% next year, compared to 15% this year.

More important things than ad load

However, the Morgan Stanley analyst sees Facebook Inc (NASDAQ:FB)’s “large and growing scale and engagement” as being more important than ad load as they also drive the social network’s revenue. Facebook Inc (NASDAQ:FB) now has 1.1 billion daily active users, representing a 17% year over year growth rate in the second quarter. Each daily active user spends an average of 51 minutes per day across all of the company’s properties, including Instagram and Messenger. Nowak explains that together, these two factors are driving about 57% of the company’s ad revenue growth for this year.

He said the strength in Facebook Inc (NASDAQ:FB)’s user and engagement trends caused him to boost his daily active user estimate for 2017 by 1% or 22 million. He also now expects time spent per daily user to rise 5% next year from 11% this year. He adds that this deceleration could also be conservative if the company’s innovation expands its use case.

FB has more pricing power

Nowak also believes Facebook Inc (NASDAQ:FB) has room for growth in ad pricing as well because he thinks advertiser demand for space on the social network is still strong. He sees two reasons that ad unit pricing through the social network’s advertiser auction can keep rising.

He explained that there’s an ongoing mix shift toward the newer types of ads that carry higher prices and perform better, such as Canvas, Dynamic and video ads. The other reason is because the social network’s scale has resulted in prices remaining low compared to ads on other traditional and online outlets. He pegs the discount offered through Facebook Inc (NASDAQ:FB) is between 70% and 80%, which means he sees room for “like-for-like” increases in cost per thousand impressions as growth in demand outpaces supply. As a result, he’s estimating an 11% increase in average ad unit price next year.

Nowak has bumped up his price target for Facebook Inc (NASDAQ:FB) stock from $150 to $160 per share and maintained his Overweight rating. Shares of Facebook Inc (NASDAQ:FB) stock edged higher by 0.9% to $130.89 during regular trading hours on Wednesday.

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