Analysts from Nomura Equity Research expect Facebook Ad Exchange (FBX) to add 9 percent, or $450 million, to advertising revenue for Facebook Inc (NASDAQ:FB) on its earnings for FY2013, based on their analysis.
Brian Nowack and Michael Constantini noted the positive feedback from initial advertisers on Facebook Ad Exchange, which was launched by the search engine giant in September. The analysts found that FBX provides significantly high advertising return on investment and click-through rates.
Nowack and Constantini recognized that fact that Facebook ROI comparisons are low, and the FBX sample size is small, but they believe the result of their initial evaluation is encouraging. According to them, the data indicated that the “use of retargeting will grow into an effective method for the social networking giant to improve performance in its lowest monetizing inventory.”
The Facebook Ad Exchange is an exclusive ad network for Facebook, which allows advertisers to use their own real-time consumer insight and web-tracking data (cookies) to retarget audiences on Facebook. Historically, online retargeting helped Facebook boost its online advertising ROI and conversion.
In their research note to investors, Nowack and Constantini wrote, “We expect FBX to be a material contributor, as our base case (even assuming FBX only ramps at the same rate as DoubleClick) implies it will add $450mn (or 9%) to FB 2013 ad revenue. Any ability to scale faster than DoubleClick (due to the more mature display market, advertiser familiarity with retargeting, and FB already market-leading reach and impression inventory) would provide further upside.”
The analysts used the real-time bidding market and DoubleClick Ad Exchange as a proxy in analyzing the forward growth and adoption of Facebook Ad Exchange. They considered the structure of the FBX and its functionality through DSPs, and the company’s huge number of online impressions.
Nowack and Constantini explained that Facebook Inc (NASDAQ:FB) continues to evolve. They do not expect the search engine giant to exceed the near-term estimates, but it is in-line with the expectations for 3Q 2012 and next year.
They maintained their buy rating on Facebook Inc (NASDAQ:FB) stock, but reduced the price target from $31.50 per share to $27 per share, based on weighted valuation methodology.