Shares of Facebook (NASDAQ:FB) closed up 4.84 percent at $57.20 on Monday after SunTrust Robinson Humphrey analyst Robert Peck raised his price target on the stock from $55 to $65. The revised price target suggests an upside of about 14 percent and is about 8.3 percent higher than the median analyst price target of $60.
In a report seen by Benzinga, Peck cited several factors fueling his optimism about the company. First, “ad load concerns seem to be overdone and are being offset by better targeting & pricing.” Peck is referencing a multifaceted scare among some investors following the company’s third-quarter earnings report in regards to Facebook’s ad load, which is the share of News Feed stories that are actually advertisements.
One concern was that increased ad load was negatively impacting the social experience and driving users, particularly teenagers, away from the service. This, says Facebook management, is not true, and analysts such as Doug Anmuth at JPMorgan agree. In an October note to clients, Anmuth wrote, “we do not believe the Q/Q decline in younger teen usage was due to News Feed ad load increases over the last few quarters.”
There’s been a lot of chatter about whether teenagers think Facebook is cool, but the real question, as Peck points out, is whether that matters. Peck argues, “Teen usage concerns are over blown, as Facebook has crossed the chasm from ‘cool app’ to a utility.” In other words, daily use among teenagers may be eroding, but it’s unclear if the slight erosion of this demographic will undermine Facebook’s ability to operate profitably.
Another concern was that company management said it didn’t expect significant growth in the ad load in the foreseeable future. This, ostensibly, means less revenue — but as Peck points out, Facebook can monetize through quality, not just quantity. The rollout of video ads to both Facebook and Instagram is a positive. Peck expects Instagram to generate approximately $300 million through those channels in 2014.
Peck has a fourth-quarter revenue estimate of $2.37 billion, slightly above the consensus Street estimate of $2.33 billion. On average, analysts are looking for earnings of 27 cents per share.