Facebook Inc (NASDAQ:FB) appears to be well positioned going into the fourth quarter of the year, according to checks and analysis done by analysts at Raymond James. They met with Kenshoo Social, a Facebook Strategic Preferred Marketing Developer, who said the social network “significantly upgraded” its advertising platform this year. As a result, Raymond James analysts believe that Facebook Inc (NASDAQ:FB)’s ads are undervalued by 12 to 30 percent.
Facebook trends look positive
Analyst Aaron Kessler maintains his Strong Buy rating on Facebook Inc (NASDAQ:FB). He said according to information provided by Kenshoo, the positive metrics established during the second quarter are holding steady into the current quarter. Kessler modeled 2 percent sequential ad growth, noting that the third quarter is typically softer due to seasonality.
For the fourth quarter, Kenshoo predicts a strong quarter over quarter increase. In fact, it could be bigger than last year’s increase from the third to the fourth quarter. That strong increase is expected to be driven by increases in retailers who are using the new targeting features and ad formats offered by Facebook Inc (NASDAQ:FB).
According to Kenshoo, mobile ad spending and mobile app installs continue to show strong uptake. Also Facebook is grabbing market share from ad networks or exchanges while also benefiting from offline to online brand advertising shifts.
Major upgrades to Facebook’s ad platform
The developer also told Kessler that Facebook Inc (NASDAQ:FB) has significantly upgraded its platform this year. It optimized ad products to push toward greater engagement and simplified ad formats. It also made improvements in targeting. According to Kenshoo, the social network offers a return on investment that’s similar to other direct response channels and that performs much better than traditional display advertising in terms of conversion and click-through rates.
Kenshoo believes advertising on Facebook is undervalued by between 12 and 30 percent, depending on which of the five attribution models are being used. That’s compared to the previous ad measurement method.
Direct response advertisers getting more out of Facebook
The developer also noted that branding is no longer the only form of advertising that’s popular on Facebook Inc (NASDAQ:FB)’s platform. According to Kenshoo, direct response advertisers have also learned how to more effectively use the social network for advertising, especially with FBX, Custom Audiences, Look Alike Audiences and Partner Categories.
Kenshoo also told Kessler that Facebook Inc (NASDAQ:FB)’s new ad formats are seeing strong adoption and that video presents a very sizeable opportunity for the social network. Strong demand for News Feed ads, Page post photo ads, Page Post Link ads and Unpublished Page Posts was noted. The developer also expects to see strong demand for video and rich media ads, although these products are still in the testing phase.