Facebook continues to benefit from the shift in ad budgets toward mobile platforms, and the story is far from being over. One firm reports that its research indicates that the social network is benefiting from that shift more from other online digital ad platforms.
MKM Partners analyst Rob Sanderson said in a report dated May 13 that Facebook Inc (NASDAQ:FB) is not only benefiting from the shift to mobile advertising but also driving it, and he thinks this will continue for quite a long time yet. As a result, he increased his price target for the social network from $135 to $150 per share and maintains his Buy rating on its stock.
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Sanderson said he’s been watching the allocation of ad dollars to digital and TV ad properties by tracking the top 15 platform’s U.S. ad revenue. He found an acceleration of 15% in total ad dollars in his tracker over the last two quarters, compared to the 9% to 10% increase “a few quarters ago.” He adds that Facebook’s share of this allocation climbed to 10% in the first quarter and has now doubled over the last two years. Meanwhile the “total pie” has increased 25%.
He adds that consensus suggests that total ad spend will increase by approximately 15% this year and that the social network’s share of that spend will increase by an additional 200 basis points by the end of the year.
Facebook growing faster than Google was
Further, he notes that Facebook Inc (NASDAQ:FB)’s core ad revenue is still skyrocketing with a 63% constant currency increase in the last report. By comparison, Google had a growth rate below 40% when it was at a similar size with a revenue run-rate of more than $20 billion.
Sanderson also points out that Facebook’s core platform still adds more than 200 million users every year as engagement trends continue to improve, thus driving continued growth in inventory. He observed that the increased inventory and advertisers and also improved targeting are giving prices a boost as well.
Much of Wall Street is now focusing on Instagram as the next source of ad growth acceleration for Facebook, but the MKM analyst notes a couple of interesting trends. He said the platform is generally attracting new ad dollars and that demand still looks to be far ahead of its limited ad inventory.
Facebook (FB) positioned to benefit from next shift in digital advertising
Sanderson now sees messaging as being “the next wave of monetization growth” for digital advertising, noting that Tencent’s WeChat appears to be demonstrating that “mobile messaging could evolve into a services portal and become the fabric for mobile commerce.” He applauds Facebook’s new Chatbots, which it unveiled at its last F8 conference. These Chatbots enable businesses to sell, offer support and advertise to users of the social network’s messaging platforms.
The analyst calls Facebook Inc (NASDAQ:FB) “a must-own stock for growth managers.”
Facebook Inc (NASDAQ:FB) shares declined by as much as 0.94% to $117.56 during regular trading hours on Tuesday.