Citing recent feedback from marketers on its mobile and news feed ads, as well as its “ability to leverage third-party data” through the Facebook Exchange and its custom audiences platform, J.P. Morgan this morning raised its price target for Facebook 21% to $35 per share from $29 previously.
“We believe Facebook's advertising revenue will accelerate at least through [the first quarter] and we are raising our advertising estimates 6% to 7% for 2013 and 2014,” Merrill Lynch analyst Doug Anmuth wrote in a report to investors this morning.
The report reiterates Merrill Lynch’s “overweight” rating for Facebook shares, and is especially positive on Facebook’s progress in developing a mobile advertising infrastructure, as well as the momentum of its ad exchange.
“Our checks suggest positive advertiser feedback around news feed and FBX ads,” reads the analyst’s report, noting that Samsung utilized Facebook ads as part of its launch campaign for its Galaxy S3 smartphone, which generated “$129 million in sales attributable to Facebook, delivering an ROI of 13 times on Samsung’s $10 million of Facebook ad spend.”
The report also singles out Pepsi’s use of Facebook advertising, including “measurement of in-store purchasing activity showing strong correlation for those users exposed to Pepsi ads on Facebook.
“We believe Facebook played a bigger role in e-commerce this holiday season, and Wal-Mart appeared to have significantly increased its ad spending on Facebook,” the report continues. “We are raising our mobile news feed estimates in our bottom-up ad model to $2.37 billion in 2013 and $4.0 billion in 2014, up from $2.0 billion and $3.3 billion previously, and we expect mobile to surpass desktop ad revenue in 2014.”
While showing some positive uptake among advertisers, the Merrill Lynch analysts estimated that the Facebook Exchange still currently accounts for less than 10% of all of Facebook’s “right rail” display ad impressions, “suggesting significant headroom going forward. We believe FBX ads could also appear in the News Feed over time based on their high click-through and conversion rates.”