Facebook Inc (NASDAQ:FB) revealed its Snapchat-like app Slingshot last week, and it’s just one of the social network’s many planned apps. The company’s management said they intend to build a whole family of apps, and Sterne Agee analysts think this is the right strategy.
Facebook estimates increased
In a report dated June 23, 2014, analysts Arvind Bhatia and Brett Strauser said they believe the digital ad industry is growing a bit faster than previously expected. They believe Facebook Inc (NASDAQ:FB) is on track to capture 13% of the global ad market over the next five years. That’s an increase from their previous estimate of 11%.
The analysts estimate that Facebook Inc (NASDAQ:FB) currently holds about a 7.5% share of the market. They’re projecting that the soon-to-be Facebook-owned WhatsApp will hold at least a 2% share of the messaging market over the next five years. The Sterne Agee team projects that Facebook will be able to increase its total revenue to $30 billion by 2018. That’s a 31% rate of compound annual growth for the five years between 2013 and 2018—an increase from their previous estimates of $27 billion or 28% compound annual growth rate.
They expect Facebook Inc (NASDAQ:FB) to expand its adjusted EBITDA margins to 63% by 2018, an increase from the company’s current 61% margin. They believe their top-line estimates could end up being conservative if the social network moves into new markets or segments like payments or ecommerce. The analysts increased their 2014 revenue estimate to $11.6 billion from $11 billion and their 2015 estimate to $15.6 billion from $14.3 billion. Their estimated earnings per share moves to $1.48 from $1.40 per share for this year and to $1.84 from $1.67 per share for next year.
Facebook shows strength in mobile
The Sterne Agee team notes Facebook Inc (NASDAQ:FB)’s solid success in mobile, with 59% of its ad revenue coming from mobile devices. That’s up from 0% a couple years ago. They believe the shift to mobile will continue, becoming about 73% of ad revenue by the fourth quarter of 2015. They see the recently launched mobile platform Audience Network as being especially important in this area.
Some estimates suggest as much as 60% of Facebook Inc (NASDAQ:FB)’s mobile ad revenue comes from mobile app install ads, meaning between 30% and 40% of the company’s total revenue. Facebook says these estimates are incorrect, although the Sterne Agee team notes that the cost per install has been rapidly increasing. They believe this will be one of the main growth drivers for Facebook for some time.
The future of Facebook’s app family
The analysts also see Facebook Inc (NASDAQ:FB)’s plan to launch a full family of apps as being a good strategy. They note that the social network’s core app is still strong in user growth, monetization and engagement, although it has yet to monetize three other standalone apps: Facebook Messenger, Instagram, and WhatsApp. Currently Facebook is focusing on user and engagement growth in all of these apps. They say that all of these apps just increase their confidence that Facebook is well-positioned in mobile.
Sterne Agee analysts have a Buy rating and $80 per share price target on Facebook Inc (NASDAQ:FB).
