Facebook Inc (NASDAQ:FB) will end the year on a positive note with an upgrade to “Outperform” and a $32 price target by BMO Capital Markets.
This comes after a two-month restriction by the firm and as it re-established coverage on the stock, it followed an “Underperform” rating and $15 price target.
Facebook Inc (NASDAQ:FB) had a closing price of $25.91 from the Dec. 28 market close. It has a 52-week high of $45 with a $17.55 low. The company’s market cap is currently $57.26 billion.
In a Dec. 31 research note, BMO Capital Market analysts, Daniel Salmon and Ygal Arounian, state the following:
We believe Facebook Inc (NASDAQ:FB) is experiencing a re-acceleration of ad spending from large brands that are returning for mobile “reach & frequency” and more video ads. We also believe direct response (DR) advertisers are now armed with a proper set of ad buying tools; while Facebook Exchange receives most of the attention, Custom Audiences is what we hear the best feedback about.
In addition, Facebook is more fully embracing native monetization such as Sponsored Stories and Gifts, and conversations with agency contacts indicates Facebook has improved its outreach to Madison Avenue.
But its top risks include:
- Investor expectations for paid search and ad network businesses remain too high
- Potential engagement attrition due to over-commercialization
- A “portfolio of social networks” strategy that is still in its early stages.
Forecasts
BMO is raising its fourth quarter revenue estimate to the top of the Street at $1,696 million. Their 2013 revenue growth estimate is now 30% vs. 22% prior, entirely due to higher ARPU.
The 2013 non-GAAP EPS estimate goes to $0.72 vs. the previous one of $0.60.
Valuation
The firm is reinstating coverage with a $32 target vs. $15. The new target multiple is 45 times 2013 non-GAAP P/E (or 38x 2014) vs. 25 times earlier.
They believe rising estimates will pull up the multiple, and 45 times still comfortably falls between Google Inc.’s (NASDAQ:GOOG) 15 times multiple and LinkedIn’s (NASDAQ: LNKD) 100 times.
Recommendation
After reinstating coverage, Facebook Inc (NASDAQ:FB) has an “Outperform” rating.
For Facebook, it’s been a long year. When its highly-anticipated IPO finally took place in May, it was fraught with problems. From the trading blunder on the NASDAQ (NASDAQ:NDAQ), allocation problems for retail customers and investment banks, and a sinking stock price, this was seen as a bust.
With its lack of success, some Internet companies became shy to go public.
The story didn’t get much better by the fall as Facebook Inc (NASDAQ:FB) stock had fallen to $17 in September. As we close out the year, it’s back to trading in the 20’s ($26.43 at the time of this writing) but it is still off 35% from its peak.
Members and investors have stepped away from the social network, and its CEO Mark Zuckerberg, who has a 57% controlling interest in Facebook’s voting shares, hasn’t been deterred from stepping back with his leadership.
The big question is what changes will come in 2013 and as BMO writes on Monday, they see some possible ones.
