Eric J. Sheridan and Vishal J. Patel of UBS have a new report on Facebook Inc (NASDAQ:FB); the executive summary can be found below.

Also Read: Instagram Launches Instagram Direct – A Move Towards Private Sharing

facebook Inc FB
facebook Inc FB

This morning, Instagram unveiled Instagram Direct, which allows users to send a photo/video directly to a group of followers (up to 15 people), augmenting the existing functionality (users post to their profiles, which all followers see). Users can then have a dialog around the privately shared content.  Additional features include: 1) the ability to see when a message is viewed and/or liked and 2) suggested recipients for a given photo/video.  We believe Instagram Direct has the potential to drive greater engagement among existing users and could bring new users to the platform that may have shied away from the prior, more public sharing model.  We note that this enhancement comes on the heels of Twitter Inc (NYSE:TWTR)’s efforts to enhance direct messaging on its own platform and press reports of a spurned attempt by FB to buy Snapchat.

+ Early Monetization Efforts Showing Positive Advertiser Facebook Inc (NASDAQ:FB)

In November, Instagram began running ads in users’ News Feeds.  Based on our checks, the initial wave was largely successful in driving engagement with advertisers. More specifically, an analysis by Curalate found that among the early campaigns, paid posts generated an average of 32x more Likes than the brands’ typical posts. Regarding Instagram Direct, while there are no plans to monetize this through direct messaging, we believe it increases the value of the platform for brands as it enables them to build deeper customer relationships.  We note that during today’s event, Instagram disclosed that half of its 150mm+ MAUs access the platform every day, demonstrating its reach.


Facebook Inc (NASDAQ:FB) Auto-Play Videos – Setting the Stage for Video Advertising

Outside of Instagram, we note that Facebook began rolling out auto-play News Feed video posts to its iOS and Android users earlier this month and to web users in the past few days.  We believe that this product enhancement could serve to gauge the effects of auto-play videos on News Feed engagement ahead of a possible broader video advertising effort.

+ Valuation: $62 PT, Buy Rating

Our $62 PT is based on our weighted average approach (EV/Sales, EV/EBITDA, EV/FCF).