Facebook Inc (NASDAQ:FB) has recovered from a low of near $17 per share to the current $23 per share. The social network giant still irks a majority of investors who were lured to invest in the botched IPO. The current market price to them solves nothing, especially for the skeptics. Moreover, in a report published Monday, Piper Jaffray equity analysts lowered their price target for the social media stock from $41 to $38, despite maintaining their Overweight rating.
Gene Munster and Dauglas J. Clinton reiterated Facebook Inc (NASDAQ:FB) at Mountain Overweight with a price target of $38, the same price its was offered to the public on May 18. However, this is a mere prediction based on various metrics as explained herein below. The analysts have identified five key teething questions that have been bombarding investor mindsets in the recent past.
The analysts noted, "we believe current key questions are mobile CTR sustainability, what to expect for desktop growth moving forward, future competition, over-monetization of mobile, and dilution of the experience through third party integrations.
Mobile Click-Through Rate Sustainability
The analysts noted that the mobile click-through rates are likely to decline but still remain above desktop, according to early reports from the response rates on Facebook, which returned positive results. The report notes that, Mashable reported 12x click-through rates. However, the analysts were prudent on this statistic, stating that they did not expect the early promise to carry on for long. Nonetheless, the impact to Facebook's near-term plans is minimal.
"We do not believe this will significantly matter in the near term for Facebook Inc (NASDAQ:FB), as it will likely have more mobile inventory it can fill in the near term and mobile ad budgets remain immature, the analysts wrote. The analysts predict that, over the next couple of years, mobile CTRs are likely to settle below 1%, but this will still be above the 0.15 reported on the desktop ads by Facebook.
Desktop Ad Growth Onwards
The analysts estimate a growth of between 0-5% over the next two years for ads growth on the desktop platform. Facebook experienced a dip in growth rate on desktop ads in Q3, after reporting a decline of 17% year-on-year as compared 26% in Q2. The analysts believe that the decline was driven by some advertisers who shifted budgets to mobile.
Munster noted that they are expecting Facebook's desktop ads growth rate to stay below 10% over the next twelve months. However, the analysts noted, "if the desktop slow down is not as drastic as expected, it could result in an upside to desktop ad revenues in potentially the next 3-4 quarters".
Mobile Migration And Increased Competition
The shift from desktop to the mobile platform continues to cannibalize the desktop-based revenues for Internet based companies. Facebook Inc (NASDAQ:FB) has not been spared. Additionally, small tech companies have seized the opportunity in the new, emerging niche, but still remain somewhat toothless against their cash-laden giants. The likes of Instagram, Snapseed, AuthenTec, and Face.com have been swallowed through acquisitions. So, how does Facebook position itself going forward?
The analysts noted of Facebook's awareness by highlighting its acquisition of Instagram, and also highlighting the attempted takeover of Twitter a few years ago. "While it is likely that new social services will arise, we believe that Facebook's management is forward thinking enough to make moves to acquire those fast growing threats as they have demonstrated in the past," the analysts noted.
Over monetization of Mobile is a Calculated Risk
The analysts pointed that Facebook Inc (NASDAQ:FB) has recently intensified its mobile monetization campaign to the extent that investors might feel that the social networking giant is investing too much on the platform, and probably forgetting the other areas. This is a risky affair, especially speaking in terms of strategy diversification. However, the analysts note that management is observing the situation.
"Based on CEO Mark Zuckerberg's comments from the Q3 earnings call, iOS platform engagement is up 20% since the launch of the new platform in late August; thus it appears the stepped up mobile ad presence is not having a negative impact thus far," the analyst wrote.
Third Party Ads No Longer A Bother To Users?
Facebook Inc (NASDAQ:FB) allowed third party integration resulting in third party ads appearing on user pages, which according to investors, may be a bother to users, hence impacting on user experience. However, the analysts point to the fact that the third party ads have been relegated to the sidebar, and should not be a bother to users. We do not believe that continued, third party integration with Facebook is likely to significantly impact the user experience," the analysts noted.
The analysts concluded, "while we are leaving our ad projections essentially unchanged, we are reducing our forward expectations around payments due to the slow down in social gaming. We previously expected $0.80 and $0.85 per year in payments ARPU in CY13 and CY14, but now expect $0.64 and $0.67 in those two years".
At the time of this writing, Facebook Inc (NASDAQ:FB) was trading at $22.99 per share, down $0.58, or a 2.44% decline from the previous close.