Facebook (FB) Flirts With $30 Again
Shares of Facebook (FB: Charts, News) finally closed over $30 this week, the first time in nearly half a year, staging a remarkable comeback after the stock plunged to $18 last year. Facebook's IPO was widely lamented as the worst IPO in recent history, trading higher than its IPO price of $38 for only a day before beginning its epic plunge.
Later, news that underwriter Morgan Stanley leaked Facebook's financials to big institutional investors prior to the IPO hurt the company's credibility. However, the company's comeback started slowly last September, after Facebook reported strong earnings which topped analyst estimates and reflected unexpected growth in mobile advertising. CEO Mark Zuckerberg also gave his company his vote of confidence, declaring he had no intentions to sell his shares in any of the subsequent lockup expirations. Daily Chart
Analysts have been increasingly positive regarding Facebook's growth trajectory. JPMorgan analyst Doug Anmuth, who forecasts the stock will continue rising to $35, stated, "Marketer feedback on mobile and news feed ads has been very positive." Anmuth also believes that mobile revenues will eclipse desktop revenues by 2014. He also forecasts that News Feed ads (the targeted advertisements that show up occasionally in the middle of your feed) will comprise 60% of the company's fourth quarter revenues. In addition, William Blair analyst Ralph Schackart acknowledged that Facebook's ad-exchange system, which allows third-party advertisers to use targeted ads based on interests, has been more successful than expected over the past year. JPMorgan analyst Scott Devitt forecasts that mobile revenues will comprise 20% of Facebook's revenue in the fourth quarter of 2012, up from 3% back in the second quarter. Topeka Capital's Ken Sena, who has a $32 price target on the stock, is even more optimistic, expecting mobile revenues to comprise 24% of its top line. One of the catalysts that prompted this sudden change of heart was a report from Samsung's Mobile division, which stated that from $10 million spent on Facebook advertisements, it was actually generating approximately $129 million in sales. This is an extremely impressive 12.9 times ROI, which will likely make other retailers consider Facebook as important as Google (GOOG
) in terms of Internet display advertising. Facebook is also moving away from a social games-dependent business model. It recently cut exclusive ties with Zynga (ZNGA
), which allows its former partner to make games outside of Facebook, while giving Facebook's own studio a chance to create first-party applications. Simply put, Facebook is releasing applications where it can pocket 100% of the revenue, rather than a 30% cut of games that might or might not be popular. Zynga, which has seen its stock slide 70% over the past twelve months, has been increasingly criticized for the lack of originality in its game offerings, which often mimic the style of other games from Electronic Arts' (EA
) Playfish or other popular mainstream franchises. Facebook also introduced "Facebook Gifts" last month, which allows friends and family to buy physical gifts for each other over the social network. Facebook takes a 12% cut of these purchases, which Devitt expects to contribute over $1 billion to annual revenues by 2015. Sena claims that Gifts could generate up to 5% of the network's revenue by 2013. This new source of revenue will easily offset any losses incurred by Zynga or its own application and games division. All of the aforementioned analysts believe that Facebook's target ad system - similar to Google's search-based one, but more personal - will be the key to the social network's growth in 2013. Although Facebook has a ways to go to justify its P/E of 160, it could very well climb back up to its IPO price and beyond - considering the growth potential of each of these business segments. Facebook is also holding an eagerly anticipated press event on January 15, with the tag line "Come and See What We're Building." Are investors in for a surprise? Other News About FB Facebook Stock Is On A Profound Tear As Wall Street Analysts Praise Its Stunning Turnaround In Mobile
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Published on Jan 11, 2013
By Leo Sun