Facebook Inc (NASDAQ:FB) could do even better than Wall Street thinks it will do, according to Morgan Stanley analysts. They say the social network offers “an unrivaled level” of scale, targeting and user engagement. The analysts initiated coverage of Facebook with an Overweight rating and $90 per share price target.

Facebook performance

Facebook leads ad market transformation

In their report dated Nov. 3, 2014, analysts Benjamin Swinburne, Hersh Khadilkar and their team said they project a 30% compound annual growth rate for Facebook between this year and 2018. While they expect the company’s EBITDA margin to compress next year, they project an increase of 400 basis points in 2016.

Facebook User growth

They note that Facebook’s growth depends on the transformation of the global ad market, which is about a $50 billion industry. In fact, they think the social network is leading the charge to change from a market of fragmented desktop advertising that’s spread across platforms and publishers into a “mobile, rich media environment.”

The analysts note that Facebook has a 20% share of the mobile time used in the U.S. They think global ad spend will climb by over 30% and that Facebook’s share will rise over 30% by 2018. They expect the social network’s share of global online and 5% of the total.

Downside seen as limited for Facebook

The Morgan Stanley team said expectations for the company have been reset, so they now see downside as being limited. They say the biggest problem Wall Street has with Facebook right now has to do with margins. They’re expecting to see operating leverage begin in 2016 and go forward.

The analysts also compared Facebook to Google Inc (NASDAQ:GOOGL) (NASDAQ:GOOG). When ignoring the greater-than 50% growth guidance for expenses next year, they say Google has had three years of growth that’s just as high as what Facebook will probably have. After that growth, they say the search giant saw its margins expand the next year.

facebook google

Facebook may beat consensus

They also think Facebook might see upside from monetization because engagement is growing. Now 64% of its 1.4 million monthly users log onto Facebook each day. They also say the company’s cost per impression is “relatively modest” and that its shares trade “modestly above” where Google was trading “at this point in its growth curve.”

The analysts also believe Facebook will more and more become a head-to-head competitor with Google. Desktop search spend is slowing down, and Google is focusing more and more on mobile and display ads. Meanwhile Facebook sees two major opportunities in mobile and online video, which together already make up about 60% of the online ad market in the U.S.

Facebook growth

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