Sterne Agee analyst, Arvind Bhatia, raises estimates and PT for Facebook Inc (NASDAQ:FB) to reflect WhatsApp deal. Why the PT is raised for spending $19 billion on a company with no earnings will be left as a question. The report from Bhatia can be found below.
We are raising our 12-month target to $80 (from $70) following the inclusion of WhatsApp in our model. User engagement and monetization on the core Facebook platform remain strong while WhatsApp provides access to a completely new revenue source. Long-term we think WhatsApp could reach 2B users and generate ARPU of $2.50 at 80% margins. Instagram monetization and video ads on Facebook and voice services on WhatsApp (possibly in 2Q) are potential near-term catalysts to shares of FB.
Large Market Opportunity. The worldwide advertising market is about $600B and Facebook is rapidly becoming a key player in this large market. We believe Facebook is gaining traction with all types of marketers—direct response, SMBs, brand marketers, and developers—as it continues to show improving ROI. While growth with brand marketers has been good, we believe FB would like to see stronger growth in this segment and believe this represents an opportunity in the medium term. Additionally, with the recent acquisition of WhatsApp, FB will participate in the $120B SMS market worldwide.
WhatsApp is a long-term positive. Facebook’s Mark Zuckerberg and WhatsApp’s Jan Koum have both made it amply clear the near-term focus for WhatsApp will be user growth. We expect WhatsApp to reach 719M/982M users by the end of 2014/2015 (up from 465M currently). We expect little in the way of monetization this year. However, we estimate monetization on WhatsApp will begin in earnest in 2015 and accelerate in 2016 and beyond. We estimate WhatsApp revenue of $344M/$685M in 2015/2016, respectively, and adjusted EBITDA of $223M/$548M in 2015/2016, respectively. This is based on the assumption that only 35% /45% of users will be paying users in 2015/2016, respectively. Also, we have assumed ARPU of $1.00 in 2015 and $1.25 in 2016. For additional details, please see the table on next page.
Many value investors have given up on their strategy over the last 15 years amid concerns that value investing no longer worked. However, some made small adjustments to their strategy but remained value investors to the core. Now all of the value investors who held fast to their investment philosophy are being rewarded as value Read More
Estimate Changes. We are raising our FY15/FY16 revenue estimates to $14.3B/$18B from $14B/$17.3B, respectively. We are raising our FY15/FY16 adjusted EBITDA estimates to $8.4B/$10.7B from $8.3B/$10.3B, respectively.