Facebook is scheduled to release its first quarter earnings report next week, and analysts are quickly pushing out their preview reports. One firm raised its price target for the social network’s stock as its analysts remain bullish as they see at least two other huge businesses growing out of the core business.
Marketers spending more on Facebook (FB) advertising
In a report dated April 18, Credit Suisse analyst Stephen Ju and team said they raised their price target for Facebook Inc (NASDAQ:FB) stock from $140 to $142 per share and maintained their Outperform rating going into next week’s earnings report. They said their near term checks have shown that marketers are allocating more and more of their budgets to Instagram and video ads and that pricing across the social network’s mobile and desktop Newsfeed ads remained strong during the first quarter even though it is usually a seasonally slow quarter.
They saw a mid- to high-single digit quarter over quarter decline off what was a seasonally strong fourth quarter.
“Two more Facebooks”
In the long term, they see what they describe as “two more Facebooks lurking inside Facebook,” with the first being Messenger’s “chat feed,” which they believe will gradually evolve into a fuller news feed. They believe this will pave the way for native advertising, something management has said could happen. Analysts have long been considering how the social network could monetize Messenger, with in-chat ads being one of the long talked-about possibilities. Ju and team believe that Facebook Inc (NASDAQ:FB) stock will benefit from native advertising inside Messenger because investors would see more optionality due to Messenger monetization. They see this coming in the near to medium term.
They see WhatsApp as being the other big business to spring out of the social network, possibly with native advertising coming to it in the long term.
No need to raise ad load
The Credit Suisse team also thinks the company can drive revenue growth in the long term without having to materially increase ad loads as a result of monetizing Messenger and WhatsApp. Other areas that would spur revenue growth include Instagram, Premium Video and DPA, all of which should have near term impacts.
They believe Wall Street is still underestimating the long term monetization potential of future products and see upward bias to the Street’s estimates as a result.
Facebook Inc (NASDAQ:FB) shares edged higher 0.79% to $110.51 in afternoon trades.