Crisp Idea Presents The Facebook Inc (FB) Bull Case

Crisp Idea Presents The Facebook Inc (FB) Bull Case

Facebook Inc (NASDAQ:FB) stock hasn’t recovered from the March correction when it fell from and all-time high of $72.59 to less than $60, staying within a few percent range for more than a month. But that doesn’t mean that the bullish sentiment that drove its stock price so high in the first place has evaporated. According to a Crisp Idea analyst Shejal Ajmera Facebook is on its way to $98.

“Facebook solved the biggest issue on mobile advertising in FY13,” writes Ajmera, who rates Facebook a Buy with a 2016 year-end price target of $98. “Mobile advertising revenues grew from a run rate of $400Mn annually to over $1.2Bn quarterly run rate.”

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Facebook’s user base gives it a big lead in mobile ads

Ajmera argues that Facebook Inc’s (NASDAQ:FB) user base and existing position in CPM (cost per impression) and CPC (cost per click) mobile advertising are advantages that few companies can even hope to compete within the next few years. The acquisition of WhatsApp further cements that advantage, and Ajmera doesn’t seem concerned about the enormous price tag, though he says that the investment should have a three-year outlook. Ajmera doesn’t address how WhatsApp’s sudden rise casts doubt on whether a large user base is really the moat that digital companies would like us to believe it is, but the willingness to buy competitors is another form of protection.

Facebook Inc (NASDAQ:FB) now has a gross revenue run rate of $8 billion, $3.1 billion from mobile ads, and Ajmera expects to see $25 billion in combined sales (Facebook and WhatsApp), $10 billion in combined net income, and $3.92 EPS by the end of FY2016. The $98 PT uses a 25x trailing PE with those estimates.

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Ajmera expects LinkedIn to double, skeptical on Twitter

Ajmera isn’t bullish across the board on social media. He sees Twitter Inc (NYSE:TWTR) valuations as reminiscent of the dot-com bubble (rated as Sell with a 2015 PT of $45), but he also thinks that LinkedIn Corp (NYSE:LNKD) is going to virtually transform into a new company by moving beyond its current role as a resource for headhunters to become a sales channel in the SMB and enterprise space, making use of its audience of professionals and business owners. With that transition in mind, he rates LinkedIn as a Buy with a FY2016 price target of $550 versus $156 today.

While Ajmera doesn’t buy into every social media bull story, the huge range in valuations highlights the risk inherent in the sector. Prices seemed to be based more on whether investors are persuaded by management’s story than on fundamentals, and they can change as quickly as people’s minds.

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