Facebook Inc (NASDAQ:FB) shares are expected to grow rapidly because of mobile-driven revenue acceleration, according to analysts at Bank of America Merrill Lynch. In a report to investors today, they maintained their Buy rating and set their price objective at $31 per share.
According to BAML analysts, the key to Facebook Inc (NASDAQ:FB)’s success lies in mobile advertising revenue. The company started slowly to monetize its mobile offerings in 2012, and they expect it to rapidly catch up and bring in $2 billion in mobile revenue this year. That’s quite a bit above a number of industry forecasts, many of which are less than $1 billion. However analysts expected the Facebook Ad Exchange to be a major driver for pricing this year with up to $1 billion in revenue through the exchange alone. They believe Facebook Inc (NASDAQ:FB)’s Gifts offering will also give it a strong foothold in the ecommerce sector.
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BAML analysts are slightly ahead of Wall Street analysts with their revenue estimates. They see a fourth quarter upside on the ramping up of mobile advertising and have set their revenue estimate at $1.55 billion and earnings per share estimate at 17 cents per share. Wall Street has set its estimate at $1.49 billion in revenue and 15 cents per share.
Analysts at BAML expect to see Facebook Inc (NASDAQ:FB)’s growth to accelerate to 37 percent in the fourth quarter of 2012 when the earnings report is released. They see five possible upside revenue drivers for the company: mobile revenues because they believe mobile ads are more effective than PC ads; Facebook Ad Exchange driving higher revenue; expanded ecommerce initiatives through Facebook Gifts; Instagram monetization; and social search progress.
They also see five downsides to shares of Facebook Inc (NASDAQ:FB) right now: declining user engagement, which has impacted the optimism on revenue opportunities; click-through rates for mobile ads could decline as users become more accustomed to them; privacy problems limiting the generation of revenue; disruption to payments because of gaming dependence; and higher than expected spending on investments.