Why One Analyst Says Facebook Stock Is Hot Despite Site's Dwindling Cool Factor

Jan 6 2014, 12:07pm CST | by

Why One Analyst Says Facebook Stock Is Hot Despite Site's Dwindling Cool Factor
Photo Credit: Forbes Business

As parents and grandparents have joined the ranks of Facebook’s most active users, the site’s bread and butter — the teenage and Millennial sets — have increasingly turned their attention to sites like Snapchat, Vine and Twitter. After all, when dorky Uncle Larry starts “liking” all your pictures, what used to feel cool can suddenly feel passe. But according to one analyst from SunTrust, Facebook’s dwindling cool factor is hardly anything for investors to worry about.

In a research note released Monday morning, SunTrust analyst Robert Peck took a bullish stance on the company, reiterating Facebook’s “buy” rating and raising its 2014 price target from $55 per share to $65 per share. Peck also revised Facebook’s fourth quarter earnings estimate, adjusting its expected revenue to $2.37 billion, up from $2.29 billion. Facebook said Monday that it will release its fourth quarter earnings after the market closes on January 29.

Peck said his bullish outlook is driven by five factors, including the monetization of Instagram, a better ad quality and the integration of mobile ads. As for claims that teens aren’t using the site? Peck sees less of a Myspace comparison than Google and Amazon analogies.

“[M]uch like how Google and Amazon aren’t necessarily considered “cool” anymore, teens and older people still use those platforms due to their utility,” he said, noting that because users share “life events” on Facebook there is an air of permanence and a true community platform. “Will teens begin to use it more as community matters more once they separate from friends physically? As long as Facebook continues to innovate and invest in new functionality, we see no reason why they wouldn’t.”

A recent Pew study found that 63% of adults visit Facebook on a daily basis, and 40% of that group visits the site multiple times a day. Peck said that this type of activity level lends further credence to the idea that Facebook is a utility and not just a hot trend. Furthermore, he said, the number of users visiting Instagram on a monthly basis (150 million as of Facebook’s third quarter earnings report) could translate into significant amounts of money.

“Assuming Facebook shows 2 ads per visit, we calculated ~63 billion total impressions the company could sell in 2014. At an effective [cost per impression] of $2.50, we calculate over $150 million of incremental revenue in 2014, growing to almost $700 million in 2017,” Peck wrote.

Indeed, results from an early trial of Instagram ads were positive: Ben & Jerry’s reached 9.8 million 18 to 34 year-olds in 8 days, while an Instagram Levi’s ad reached 7.4 million 18 to 34 year-olds over the course of 9 days. Control groups for both ads revealed double-digit increases in brand recall.

For its near-term, fourth-quarter revenue prediction, Peck said that the $2.4 billion revenue estimate is split between payment revenues of $242 million (which would mark a 5% year-over-year decline) and ad revenues of $2.13 billion, a 60% year-over-year increase. While the accuracy of Peck’s prediction will come to light when Facebook reports its fourth quarter results on the 29th, Peck’s recent track record is pretty good: he was the first to set a public price target for Twitter, setting a bullish $50 per share target when the company itself said shares were worth a little over $20 a pop. Today, Twitter is trading for $64.72 per share, a 53.7% gain since its November 7, 2013 stock market debut.

Following the release of Peck’s report, shares of Facebook were up 2.3% in Monday morning trading. The stock finished 2013 with 95.2% growth.

Source: Forbes Business

 
 

Don't miss ...

 

<a href="/latest_stories/all/all/30" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

blog comments powered by Disqus

Latest stories

Canada suspends issuance of visas to Ebola-hit African countries
Ottawa, Nov 1 (IANS) Canada has suspended issuance of visas to residents of West African countries with "widespread and persistent-intense transmission" of Ebola virus disease, a media report said Friday.
 
 
Chinese unmanned lunar orbiter returns home
Beijing, Nov 1 (IANS) China succeeded Saturday in the world's first mission to the Moon and back, becoming the third nation to do so after the former Soviet Union and the US.
 
 
China pledges $81 mn financial assistance for Afghanistan
Beijing, Oct 31 (IANS) China Friday pledged to provide non-reimbursable assistance of 500 million yuan (about 81 million dollars) to Afghanistan this year at an international meeting on Afghanistan held here.
 
 
EU seeks talks with Russia over goods duties: WTO
Geneva, Oct 31 (IANS) The European Union (EU) has sought a consultation with Russia over the tariffs the latter imposed on certain agricultural and manufactured goods, the World Trade Organisation (WTO) said Friday.
 
 
 

Latest from the Network

Canada suspends issuance of visas to Ebola-hit African countries
Ottawa, Nov 1 (IANS) Canada has suspended issuance of visas to residents of West African countries with "widespread and persistent-intense transmission" of Ebola virus disease, a media report said Friday. The Canadian...
Read more on Politics Balla
 
Sheen keen to return to 'Two and a Half Men'
Los Angeles, Nov 1 (IANS) Actor Charlie Sheen says he is open to a return to popular TV show "Two and a Half Men". Sheen, who was was fired from the sitcom in March 2011 after a series of negative headlines, says he...
Read more on Celebrity Balla
 
14 killed in Honduras bus crash
Tegucigalpa, Nov 1 (IANS) At least 14 people were killed and scores injured when a bus carrying them plunged into a ravine in western Honduras, media reports said Friday. The accident, which occurred early in the day...
Read more on Politics Balla
 
US urges peaceful transition of power in Burkina Faso
Washington, Nov 1 (IANS) The US Friday called for a "peaceful" transition of power in Burkina Faso, but refused to label the military's take-over as a coup. "We underscored our commitment to peaceful transitions of...
Read more on Politics Balla
 
'Interstellar' about bonds of love: Jessica Chastain
Los Angeles, Nov 1 (IANS) Actress Jessica Chastain says that her forthcoming science fiction "Interstellar" is also about fathers and the bonds of love. In the movie, she plays Matthew McConaughey's character's...
Read more on Celebrity Balla
 
Chinese unmanned lunar orbiter returns home
Beijing, Nov 1 (IANS) China succeeded Saturday in the world's first mission to the Moon and back, becoming the third nation to do so after the former Soviet Union and the US. The test lunar orbiter, nicknamed "Xiaofei...
Read more on Business Balla
 
Avril Lavigne feels 'a bit lost'
Avril Lavigne feels ''a bit lost'' amid rumors her marriage to Chad Kroeger is on the rocks. The 'Here's to Never Growing Up' singer, who recently celebrated her 30th birthday without her husband, reportedly thinks her...
Read more on Celebrity Balla
 
Scott Disick is battling severe anxiety
Scott Disick admits his anxiety makes him ''literally want to jump out of my skin.'' The 31-year-old reality TV star - whose longtime girlfriend Kourtney Kardashian is set to give birth to their third child in December...
Read more on Celebrity Balla
 
Demi Lovato wants to be 'sexier' this Halloween
Demi Lovato says working out has boosted her confidence. The 22-year-old singer, who sought treatment for a number of issues, including an eating disorder, in rehab in late 2010, is planning to wear a ''sexier''...
Read more on Celebrity Balla
 
Usher's son is his toughest critic
Usher's son doesn't think he's a great singer. The 'She Came To Give It To You' hitmaker admits his youngest child, Nayvid, five, is very critical of his performances. The 36-year-old star said: ''He doesn't care about...
Read more on Celebrity Balla