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Facebook: Credit Suisse Ups Target to $102 as ‘Audience Network’ Starts Rolling
By Tiernan Ray
Credit Suisse‘s Stephen Ju today reiterates an Outperform rating on shares of Facebook (FB), and raises his price target to $102 from $88, after updating his thinking about the company’s “Facebook Audience Network,” or FAN, the service that places ads on other companies’ mobile apps, for which Facebook collects a fee.
After reviewing the numbers, and projecting perhaps $1.1 billion in revenue from FAN in 2016, Ju is reassured, he writes, in his basic view of Facebook as an investment: “Facebook will be able to drive revenue growth without a material lift in ad loads, Street models are too conservative and underestimate the long-term monetization potential of upcoming new products, optionality and upward bias to estimates do not contemplate contributions from multiple other products.”
FAN, which was introduced by Facebook a year ago, is just ramping up this year, writes Ju. The $1.1 billion mentioned for next year is “gross” revenue, which is the total amount of ad dollars split between the app developers, or “publishers,” as he calls them, and Facebook. Facebook gets a 20% cut.
Here’s Ju’s table of projections for FAN (click on the image to see it larger):
https://farm8.staticflickr.com/7581/16094102077_63421b8ac5.jpg
Ju writes that he arrived at his FAN estimates by considering two points:
We started by looking at the most recent average revenue per seller statistic reported by the Rubicon project for FY13 of ~$600,000 – which we then increased to reflect our belief that: a. Facebook will likely target larger publishers of mobile inventory immediately upon launch – while in a desktop/programmatic environment, larger publishers historically hesitated to tap into ad exchanges to monetize their inventory due to fears around pricing power and advertiser quality. b. Facebook will be pitching publishers for mobile inventory, where the number of entrenched competitors offering competitive monetization options is far fewer than the desktop advertising environment c. Facebook will be pitching publishers for their inventory armed with an un-paralleled array of mobile ad creatives and targeting data. d. Mobile engagement (and therefore potential ad inventory) is growing at a rapid rate, far exceeding that of desktop.
Our second approach, more top-down in nature, which began by first compiling a list of user mobile engagement metrics by publisher in the U.S. to serve as a proxy for potential mobile ad volume. We then proceeded to whittle down the top 100 publishers on that list by excluding any app we believe is unlikely to participate in FAN. Following the exclusion of the ~23% of mobile engagement generated by Facebook’s own mobile properties (including Instagram and WhatsApp), this exercise left us with ~37% of total U.S. mobile engagement as potentially addressable.
Ju’s estimate for 2015 rises to $16.35 billion in total revenue, $9 billion in Ebitda, and $1.57 in EPS from a prior estimate for $15.7 billion, $8.9 billion, and $1.54.
Facebook shares today are down 20 cents at $76.25.
Credit Suisse‘s Stephen Ju today reiterates an Outperform rating on shares of Facebook (FB), and raises his price target to $102 from $88, after updating his thinking about the company’s “Facebook Audience Network,” or FAN, the service that places ads on other ... -----------
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