Morgan Stanley & Co analysts Scott Devitt, Jordan Monahan, Erhan Soyer-Osman, and John Egbert look at Facebook and conclude that Instagram could be a key driver for the company, as well as video advertising.
Facebook Inc (FB) continues to lead
Facebook Inc (NASDAQ:FB) continues to lead the socially enabled internet; we forecast 927m mobile MAUs (+36% Y/Y) and expect mobile to exceed 50% of total ad revenue at $1.1B (+25% Q/Q). We expect continued mobile momentum as both Instagram and video begin to contribute in 4Q.
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We expect 4Q2013 revenue and EBITDA to be about in line with to above consensus estimates, which call for growth of 48% Y/Y and 49% Y/Y, respectively. Our estimates call for total revenue to increase 51% Y/Y to $2.39b and for advertising revenue of $2.16b to grow 63% Y/Y. We look for Facebook Inc (NASDAQ:FB) mobile ad revenue to comprise 51% of total advertising revenue.
We expect Instagram to help mobile momentum given advertising launch during the quarter. We estimate Instagram could contribute about $255m in 2014, and nearly $500m in 2015, or around 4% of total ad revenue. A recent global survey from GWI Social indicated that the
biggest rise in active users between 2Q and 4Q among social networks was led by Instagram (+23%). We model Instagram WW DAUs growing at 10% CAGR from 2014-2017, with potential for upside.
Upcoming stock catalysts:
(1) video advertising, which in our view, may be Facebook Inc (NASDAQ:FB)’s next multi-billion dollar opportunity. We see video advertising contributing in 4Q and boosting total revenue by 10%-15% within 1-2 years; (2) more brand advertiser dollars, given a new comScore study that found users were 37% / 50% more likely to visit brand / model pages following a Facebook automotive ad campaign. In our view, increased brand advertising campaigns on Facebook Inc (NASDAQ:FB) may lend itself to faster uptake of Facebook’s video ad products.
(1) Update on user engagement metrics, including teenage usage; (2) Usage of Instagram’s new direct photo product; (3) Ad load across different user products and geographies; (4) Update on user and advertiser demand from video advertising across Facebook Inc (NASDAQ:FB)’s ad products.