Facebook Inc (FB): Sterne Agee Raises Estimates, Price Target


Facebook Inc (NASDAQ:FB) is riding on success in the mobile segment and better opportunities in video advertising and Instagram, which can take the stock up further. According to analysts Arvind Bhatia and Brett Strauser from Sterne Agee, payments and gifts present strong opportunities for Facebook in the medium- to long-term.

Facebook Inc (FB): Sterne Agee Raises Estimates, Price Target

 Mark Zuckerberg will talk at the TeleCrunch Disrupt SF 2013 conference next week, which can take the stock higher, similar to last year.

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 Facebook addressing mobile concerns

In the recent second quarter, Facebook—to some extent—answered the investors’ concerns regarding the mobile platform by posting revenue from Mobile advertising, $656 million crossing the Wall Street expectation of $450 million. For the third quarter, Facebook is expecting the mobile advertising revenue to come in at $764 million, which analysts expect achievable. According to analysts, market shares on mobile for Facebook is 15 percent compared to 5 percent of overall digital ad spending.

Ad spending rising

In a survey, eMarketer found that mobile advertising is expected to increase at a faster momentum compared to overall digital advertising. Facebook Inc (NASDAQ:FB) is in a good position to draw maximum benefit from this trend. Further, according to eMarketer, worldwide digital spending will surge at a CAGR of 11 percent and reach $173 billion by 2017, up from $104 billion in 2012. Apart from digital spending, mobile ad spending will reach $63 billion by 2017, which is an increase over $9 billion in 2012 or a 5-year CAGR of 48 percent. The United States mobile advertising Industry is expected to increase to $31 billion, compared to $4.4 billion in 2012, or a 5 year CAGR of 48 percent.

Potential opportunities

According to analysts, Facebook Inc (NASDAQ:FB) is looking forward to the launch of 15 second video advertisement soon, but there is no word on the launch date, as of now. However, Facebook can draw maximum revenue by materializing this opportunity, as the rate of some of the ads will be approximately $2 million per day per advertiser. Video advertising will be approximately a $6 billion market in 2014, according to eMarketer.

In the medium and long term, another opportunity that Facebook can seize upon is FB Gifts. Facebook has started the trend of digital gifts (shifting away from physical ones), which represent 80 percent of the gifts volume on Facebook.

Analysts note that the prime challenge for Facebook Inc (NASDAQ:FB) would be to increase the engagement levels along with increasing monetization. Though both factors are not dependent on each other, it would be important to balance both. Analysts at Sterne Agee have raised the target price on Facebook to $50 and have a Buy rating on the stock.

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