Facebook Inc (NASDAQ:FB) has received an upgrade from the U.S. Internet Team at Jefferies. In a report issued to investors this morning, the Jefferies team led by Brian Pitz and Brian Fitzgerald said they upgraded the stock from hold to buy because they believe the social network’s risk / reward profile is improving thanks to new ad products.
The analysts also raised their price target for shares of Facebook Inc (NASDAQ:FB) from $31 to $32 per share.
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Facebook Inc (FB)’s New Ad Products
One of the main reasons the analysts gave for the company’s improving risk / reward profile is the new ad products it’s offering. They said they’re “optimistic” about those new ads, which include video, mobile app install ads, custom audiences, FBX and partner categories.
In their view, video ads could be Facebook Inc (NASDAQ:FB)’s “next billion-dollar business.” The social network expects that video ads will generate $1 million to $4 million in daily revenue per ad age. The push into video ads is essentially the company’s way of trying to tap into the television ad market, which is estimated to be about a $65 billion industry annually in the U.S.
The analysts said Facebook’s mobile ad business is on track to provide almost $2 billion in revenue this year. Mobile ads didn’t generate any ad revenue for Facebook in the second quarter of last year, and Jefferies analysts believe that video ads could ramp just as fast as mobile ads did.
We could begin seeing these video ads in July.
Declining Engagement On Facebook Not A Concern
They also believe that investor worries about declining user engagement have created a buying opportunity for Facebook Inc (NASDAQ:FB). They said that during the first quarter of the year, user engagement on the social network was at the highest level ever, with six out of ten users logging into Facebook every day.
They also said that Facebook Inc (NASDAQ:FB) is the top app as mobile users spend a fifth of their mobile minutes using the social network. They don’t see much evidence that other social services like Snapchat are rising while usage of Facebook is declining. In addition, they believe advertisers are going to find the social network’s users “irresistible despite any incremental changes in teen usage habits.”