Facebook Inc (NASDAQ:FB) is scheduled to release its next earnings report on July 23, and analysts at Pivotal have adjusted their estimates before that report. They increased their price target for the social network from $74 to $81 per share and reiterated their Buy rating on Facebook Inc (NASDAQ:FB) stock.

facebook stock FB

Facebook (FB) is the preferred Internet ad stock

In a report dated July 9, 2014, analyst Brian Wieser said he continues to like Facebook Inc (NASDAQ:FB) the best within the online advertising sector. His new price target is assumes a more than 20% upside to the social network’s current trading levels. The analyst cited faster than expected growth in revenues from several different ad products and segments of the market as the reason for his increased estimates and price target.

Wieser says the 71% gain in Facebook Inc (NASDAQ:FB)’s first quarter was due to easy comparables, new advertising products, new initiatives for some marketer segments, and continued ramp of Facebook Exchange and international expansion.

Marketers continue shifting ad dollars to Facebook (FB)

The analyst spoke with marketers and found that many of them continue adding to their spending on Facebook, referencing the social network’s greater focus on targeting. In addition, he states that Instagram is only starting to monetize and that revenue from it should start to immediately add to Facebook Inc (NASDAQ:FB)’s results.

In addition, he said Facebook Inc (NASDAQ:FB)’s mobile ad network should boost its sales of app install ads and general display advertising. Wieser also said the LiveRail acquisition, when combined with marketers’ increasing shift toward online video spend, should offer incremental revenue to Facebook as well.

Where investors will focus

When Facebook Inc (NASDAQ:FB) releases its next earnings report, Wieser thinks investors will be looking at app install ads. It’s estimated that growth in this particular type of ad makes up about a third of the company’s recent gains in revenue. The analyst estimates that Facebook sees about $3 per app install ad. Some third parties estimate lower numbers, like Fiksu, which suggests between $1 and $2 for app install ads, while others suggest as high as $5 to $7 per app install ad. Wieser thinks advertisers pay higher premiums on Facebook’s ads because of the quality of the ad placements and also “lower-churning installs.”

If the social network continues ramping up downloads to 150 million during the second quarter, compared to 150 million in the same quarter a year ago, it will have added $300 million in ad sales during the quarter, the same as it added in the previous quarter.

Other areas of growth for Facebook

He estimates that small businesses could provide nearly the same amount of growth and thinks investors should be more focused on this segment. Facebook has more than 1 million small businesses currently advertising on its platform, which is significant growth from the 250,000 that were advertising on it in late 2012.

He believes each small business spends in the low thousands of dollars in advertising on Facebook Inc (NASDAQ:FB) annually. He also thinks that the social network’s efforts to gain part of this market are enabling it to pull marketing spend share gains away from Google Inc (NASDAQ:GOOGL) (NASDAQ:GOOG).

The analyst assumes that at least some of the first quarter’s growth was unrepeatable because of the scale of its outperformance compared to his expectations. As a result, he thinks a slightly lower growth rate is “appropriate” for the second quarter. He’s looking for 59% total growth and 66% ad revenue growth. That’s compared to the first quarter’s 71% total revenue growth and 81% ad revenue growth and his previous second quarter estimate of 54% total growth and 60% growth in ad revenue.