Earlier this month, Facebook Inc. (FB) was at the forefront of a sell-off in momentum stocks, owing to investors' concern over high valuations and high-growth stocks. Since Facebook's acquisition of Oculus VR, along with the sell-off, the company has shed more than 12% of its value in the three weeks ending April 17. However, in the last five days, the company has gained some momentum and is up more than 4%. The gain in stock price may well be attributed to news making rounds that the social media giant will introduce its mobile ad network at the end of this month, and that it has received an upgrade from the Swiss financial services company Credit Suisse.
Facebook F8 – a mostly annual developer conference – is scheduled for the end of the month, and the rumor has it that the social media giant will take the occasion to unveil its mobile ad network. The mobile ad network will enable companies to advertise on mobile apps other than Facebook's own app. Facebook’s data on over 1.28 billion users will be utilized for its reach to effectively target the right audience. The company had tested its ad network two years ago, but development was halted due to a focus on scaling ads on the Facebook newsfeed before running them off of the platform.
Additionally, 78% of the 1.28 billion Facebook users can access the social network on mobile. In fact, the company earned 53% of its advertisement revenues from mobile users in its fourth quarter last year. This puts the social media giant in a strategic position to leverage on the data it has collected, while becoming a liaison between publishers and advertisers. Through this network, developers and publishers will be able to place ads in their own apps.
Facebook already has app-install ads on mobile, which let users directly install apps. According to Re/code, a tech analysis website, these ads accounted for more than 50% of Facebook's mobile revenues. Twitter Inc. (TWTR), not lagging far behind, has also introduced such ads in its tweets, allowing users to install apps directly.
Facebook has been eyeing its own ad network for years and a lot of time and effort has gone into this endeavor. It will probably give the company bargaining power when it comes to sharing revenue with publishers – although the company shares the space with rival Google’s AdMob network. The social media giant, however, has the advantage of a larger database and the ability to accurately target and reach audience.
Just before Facebook's earnings scheduled for April 23, Credit Suisse analyst Stephen Ju raised his rating of the company from Neutral to Outperform, and also upped his price target from $65 to $87. He expects a higher rate of growth in average revenue per user coupled with projections on monetization of recently introduced products. Ju has foregone the simplistic average revenue per user (ARPU) model for a product-by-product model for his estimates.
Citing Facebook’s chronology of introducing new features and then monetizing them, Ju compared the company to a “layered cake, with value seeping in with every new product release.” The company has introduced premium videos, Instagram ads, and other new features, revenues for which will be realized in the next few years. Based on his updated model estimates and expected monetization projections, he has projected an ARPU of $1.16 in 2016, increasing to $2.09 in 2019. Based on the prior model, figures would have been $0.99 in 2016 and $1.52 in 2019.
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