Facebook Drops Despite Bullish Analyst Comments
Gains in the pre-market suggested that Facebook (NASDAQ:FB) would continue last week’s rally heading into its highly-anticipated event on Tuesday morning. Early trading was catalyzed by bullish notes from analysts at Deutsche Bank and Oppenheimer, but by 10:30 a.m. shares dipped briefly below $31 on heavy volume.
What did analysts say?
“Recent comScore data suggests an inflection in U.S. desktop usage, implying mobile cannibalization may have slowed,” said analyst Jason Helfstein of Oppenheimer. “We expect 4Q:12 to be the first quarter where FB sees a meaningful contribution from FBX, the company’s real-time bidding exchange.”
A lot of Facebook’s stock movement is a product of the uncertainty of its revenue streams. The company’s mobile monetization strategy is not mature enough yet to convince investors that the company’s high valuation — trailing-twelve months price-to-earnings ratio of 162.23 — is worth it. If desktop ad revenues stabilize on the back of higher contributions from Facebook Exchange, then the firm’s $34 price target could be quickly realized.
Deutsche Bank upgraded Facebook from “Hold” to “Buy” and moved its price target from $36 to $40. The bank commented: “Mobile Newsfeed Ads are the game-changer, but the ramp-up is happening much faster than our initial estimates and we see several new catalysts emerging. Ad revenue should growth north of 40% in 2013, well above consensus.” The firm sees as much as $800 million in news feed ad revenue per quarter by the end of 2013.
All this comes on the eve of Facebook’s big mystery event, to be held Tuesday morning at the company’s headquarters in California. As noted, the stock enjoyed a nice run last week as hype for the event grew, and with a week of speculation behind us, what the company could unveil or announce is still anybody’s guess.
With the analysts putting on their bull horns about ad revenue, it would be great to see another mobile monetization initiative. Google (NASDAQ:GOOG) is, and is expected to remain, the display-ad king through at least 2014, according to eMarketer. But with 1 billion users under its belt, Facebook feels like it’s just one good idea away from turning that all around. The social network commands an estimated 14.4 percent of the display-ad revenue share, compared to Google’s 15.4 percent.
Looking ahead to tomorrow’s event, one strong contender could be an enhanced e-commerce platform, although it would have to be a huge jump from Facebook Gifts to warrant all of the buzz. Amazon (NASDAQ:AMZN) has already responded to Facebook’s foray into the world of e-commerce with a step in the social direction, launching its “Friends and Family Gifting” option. The premise behind both is similar. Social web allows you to stay in touch with the people you care about; e-commerce allows you to effortlessly send gifts to people you care about through the mail. With their powers combined, they are “social commerce,” the first of its kind, and the potential for profit is tremendous.
A built-in commercial platform could also prove to be a boon for advertising revenues. There’s nothing like pushing a product to a user that’s already primed to spend. This could increase the effectiveness of Facebook Exchange.
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