Facebook Inc (NASDAQ:FB) is in a very good position to benefit from the rapid shift in advertising dollars to mobile, according to analysts at Sterne Agee. As a result, they have increased their price target and estimates for the social network because of some key catalysts they see in its future.
Facebook benefits from industry growth
Analysts Arvin Bhatia and Brett Strauser said the shift from offline to online advertising is still a powerful trend for Facebook and other online advertising companies. In addition, they report that the shift from desktop to mobile Internet advertising is happening faster than they anticipated.
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They note that eMarketer expects to see 120% growth in U.S. mobile advertising revenue across the board in this year alone. In 2014, they are expecting to see 56% growth.
Video ads still a catalyst for Facebook
Facebook Inc (NASDAQ:FB) said this week that it will begin testing auto-play video ads, which many see as an important catalyst for the social network. Analysts and investors have been anticipating video ads for quite some time, but the company’s management delayed the rollout of those ads because it wanted to make sure that they did not have a negative impact on the user experience.
Some speculate that video ads could add as much as $3 million in daily revenue to Facebook. The Sterne Agee team believes video ads could end up making between 5% and 10% of the social network’s advertising dollars next year, although they note that this depends on how aggressive the company is in rolling them out.
Ultimately, they view video ads as enabling Facebook Inc (NASDAQ:FB) to go after the more than $200 billion global television advertising market. In the U.S. alone, they report that between 90 million and 100 million are using Facebook during prime-time television watching hours.
Facebook estimates raised
The analysts raised their estimates and price target for Facebook based on the addition of video ads and also “more aggressive monetization of Instagram.” They’re expecting the company to beat expectations when it reports earnings for the current quarter. They raised their fourth calendar quarter revenue estimate to $2.3 billion. That’s compared to their previous estimate of $2.18 billion.
They also increased their 2014 full-year revenue estimate from $9.15 billion to $10.3 billion. The analysts continue to rate Facebook Inc (NASDAQFB) as a Buy and have raised their price target to $60 a share.