Facebook Inc (NASDAQ:FB) shares have been riding high since the company’s last earnings report, and UBS analysts believe that momentum will continue. They issued a report to investors this week maintaining their Buy rating and increasing their price target from $36 to $45 per share for the stock.
Facebook advertising checks look good
Analysts Eric J. Sheridan, Vishal J. Patel and Timothy E. Chiodo said they did some checks of advertising industry channels and revisited their assumptions for Facebook Inc (NASDAQ:FB). They believe that the social network’s second quarter operating momentum is continuing into the current quarter. They say the momentum is being driven by advertisers adopting the company’s new products, both recently and in the very near future as the launch of the network’s video ads approaches.
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Facebook is under-monetized
The analysts believe the social network is still under-monetized in relation to its peers when considering the amount of time spent on the platform. They said the social network generates more revenue per user than Yahoo! Inc. (NASDAQ:YHOO) or AOL, Inc. (NYSE:AOL).
They also note that Facebook is “significantly under-monetized” compared to Google Inc (NASDAQ:GOOG), which is especially important because traffic data shows users spend about the same amount of time on Facebook as they do on all of Google’s sites. They said Facebook Inc (NASDAQ:FB) has 4 times the headroom before it will be monetizing its users at the same rate.
Facebook’s pricing power in action
In addition, the analysts believe that ads on Facebook “exhibit strong pricing power” and that the company will be able to get higher prices for its video ads than what they previously thought. They said the company’s pricing power is illustrated by the fact that in a year, it raised the number of ads in the average user’s News Feed to 5 percent from 0 percent last year and “has not measured a meaningful drop in satisfaction.” However, users do take notice of the ads, so the company said it will prioritize increasing the number of marketers using its platform.
In terms of video advertising, the analysts said their checks showed Facebook Inc (NASDAQ:FB) was pitching its video ad products with asking prices in the seven figure range. In recent weeks though, they uncovered more details, including reports that those ads could sell for up to $2.5 million per day. They believe the company could generate between $2 million and $4 million daily from video ad products in North America in the next year.
Facebook estimates raised
They increased their estimates for Facebook in light of their updated checks. They increased their 2013 fiscal year revenue from $7.2 billion to $7.49 billion and their 2014 revenue from $9.4 billion to $10.1 billion. They cited mobile ad strength and more stability for desktop ads as being the reasons for these increases.
Their estimates for earnings before interest, taxes, depreciation and amortization go from $4.05 billion to $4.17 billion for this year and from $5.35 billion to $5.69 billion for next year.