UBS Global Research analysts Eric J. Sheridan, Vishal J. Patel and Timothy E. Chiodo rate Facebook Inc (NASDAQ:FB) as a Buy as they run the company through a series of Q1 checks.
Q1 checks reflect continuing pricing strength
Our Q1 advertiser channel checks suggest that the pricing strength exhibited in Q4 (+92% YoY price-per-ad) has carried over into early 2014 and is likely sustainable for longer than our prior estimates had assumed. In particular, we note the improved quality of advertisers & increased frequency of higher CPM formats (mobile app ads in particular) within the existing ad load. We also point to an Ogilvy study highlighting declines in organic page reach (from ~12% in Oct to ~6% in Feb), which we believe is acting as an impetus for greater ad spend as brand advertisers seek to maintain their audience – outsized ROIs on FB are more than sufficient to justify this greater spend.
Valuewalk’s January 2021 Hedge Fund Update: First Issue Now Published!
Welcome to our inaugural issue of ValueWalk's hedge fund update. Below subscribers can find an excerpt in text and the full issue in PDF format. Please send us your feedback! Featuring Bill Ackman's comeback, a look at Alta Fox Capital, Prentice Capital having a strong year, Canyon Partners profiting on Covid crisis refinancings, and Odey's Read More
Recent advertising deals show traction with brands
Facebook Inc (NASDAQ:FB) is gaining increased traction with brands, who view the platform as a means to buy audience/reach (based on our conversations). In particular, we highlight the global partnership announced by Mondelez International – the agreement covers 52 countries & includes a joint commitment to innovation, opportunities to opt into Facebook’s beta-testing programs, access to research and capability building through immersion days in priority markets. Separately, AdAge reports that Omnicom has signed a $100mm deal to roll out paid advertising on Instagram on behalf of its brand clients. That said, we believe our estimates are achievable without a meaningful contribution from Instagram or auto-play video ads.
Increased operating estimates partially offset by dilution
Our new FY14 ests are revs $11.9b (from $11.1b); Adj. EBITDA $7.4b (from $6.8b), Adj. EPS $1.25 (from $1.27). Our new FY15 ests are now revs $16.0b (from $14.0b); Adj. EBITDA $10.2b (from $8.6b), Adj. EPS $1.80 (from $1.67).
Our $90 price target (prior: $72) for Facebook Inc (NASDAQ:FB) is based on our weighted avg. framework (EV/Sales, EV/EBITDA, EV/FCF) based on our ’13-’15 ests. Our ests do not reflect revenue & EBITDA from WhatsApp (as the deal has not closed) but account for the expected share count dilution – an approach we consider conservative.