In its six-plus months as a publicly-traded company, Facebook Inc (NASDAQ:FB) has consistently been in the headlines. From its boggled and questionable IPO, declining stock value and challenges to grow, there’s always a story with the social media giant.

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Year-to-date, Facebook Inc (NASDAQ:FB) is down 32.03 percent to $25.71 per share. On Monday, in light of previously “unlocked” restricted stock earlier in the month, along with new bullish comments, the stock rose 7.6% to its highest point in four months.

In the last two weeks, the stock has risen 30% and options traders see bright days ahead, reported the Wall Street Journal.

Analysts are also jumping on the bandwagon and on Tuesday, Nomura Equity Research came out with a new report called, “3 Drivers to “Like” in ’13 – Outgrowing Mere “Optionality.”

The firm has a “Buy” rating for Facebook Inc (NASDAQ:FB) and a target price of $32.00.

The analysts noted that after the stock under-performed the market by 6,200bp beginning with its IPO through the third quarter, Facebook has now out-performed by 3,400bp in the fourth quarter to-date. This has been attributed to multiple factors, including faster than expected mobile ad growth in the third quarter, lower-than-expected supply pressure during the recent lock-ups, and expectations for continued strong top-line results.

The reports lists three drivers that will allow Facebook Inc (NASDAQ:FB) to continue outpeforming in 2013.

Take a look.

It Begins with Mobile

Yes, it all starts with mobile, as Facebook’s mobile ad revenue grew from ~$20million in the second quarter to ~$152 million in the third quarter. However, (for now) we believe this quick mobile ad traction is largely being driven by advertiser budget shifts away from poorly-performing Facebook ad units to new, better performing mobile Sponsored Story units.

This rapid ramp is encouraging, as it showcases Facebook’s ability to improve monetization and draw new ad dollars into the young mobile ad ecosystem.

Our checks indicate ad dollars have continued accelerating toward mobile as we now expect Facebook Inc (NASDAQ:FB) to generate $315 million of mobile ad revenue in the fourth quarter and $1.44 billion in 2013. FB’s mobile ramp (and daily run-rates) gives us added precision in our 2013 overall modeling, causing us to raise our 2013 ad revenue estimates by 6 percent.

Overall, we see mobile driving 63 percent of Facebook’s 2013 ad growth.

Facebook Ad Exchange and Desktop-sponsored Story Revenues

The second source of ad revenue will come from the Facebook Ad Exchange, which we expect to ramp to $450 million of incremental revenue next year, driving 30 percent of Facebook’s total ad revenue growth.

Desktop sponsored story revenue is expected to rise by $108 million next year, driving 7 percent of total ad revenue growth, as we are conservatively assuming the run-rate stays at $1 million per day, until getting more visibility into 2013 overall ad budgets.

In the same light, for now we are assuming the remainder of Facebook’s desktop display revenue from existing business, such as non-FBX right-rail ads and Sponsored Posts, as well as from any new potential businesses–like the oft-mentioned off-Facebook ad exchange–doesn’t grow at all.

This too may prove to be conservative, given global online display dollars are expected to grow by ~10 percent in 2013.


As we bucket and raise our advertising estimates, we are now 3 percent above Street 2013 total revenue estimates. We are raising our price target from $27 to $32, due to our new higher numbers.

We continue to recommend Facebook Inc (NASDAQ:FB) heading into 2013 as visibility around Facebook’s drivers improves showcasing the platform’s earnings power, and moving Facebook beyond a play on mere optionality.