Analysts Upgrade Facebook, Predict Mobile Will Surpass Online Ad Revenue Next Year

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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.”

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3 comments on "Analysts Upgrade Facebook, Predict Mobile Will Surpass Online Ad Revenue Next Year".

1. Robert Gilmour from Innfinite Hospitality Ltd
   

   commented on: January 2, 2013 at 11:06 a.m.
   One BIG word missing from this post = success. Its not the amount spent, its how successful that spend was, that will determine ongoing growth and success in 'mobile' advertising and Facebook. Remember GM pulled its Facebook budget spend because it wasn't producing. The jury is very much still out on this, and remember customers are merely served ads, they don't necessarily either want them, look at them, or act on them. Privacy and the way it is dealt with going forward will also have a big part to play. Facebook and mobile are still way too immature to be making sweeping assumptions about success and share prices. In my market, hotels and travel, Facebook has done very little to write home about, and mobile commerce (which is ultimately what my hotels crave for) is still very much in its infancy and not growing that fast. There is a world out there beyond Facebook you know. its called the real world.
2. Robin Riddle from New York
   

   commented on: January 3, 2013 at 10:58 a.m.
   One of the challenges with Mobile remains that of simple physics: There's only so much content you can get onto a small screen. That makes traditional banners unworkable, which leaves you native and subscription as the most viable options for monetization. Facebook has been unable or unwilling to do anything with the latter of those. It remains to be seen how successful it and every other publisher can develop native formats. Fred Wilson (Union Square Ventures) wrote on interesting piece on web monitezation just before Christmas. Robin Riddle http://robinriddle.brandyourself.com/
3. Robert Gilmour from Innfinite Hospitality Ltd
   

   commented on: January 3, 2013 at 11:04 a.m.
   Robin it also appears that 'accessibility' has gone out of the window with mobile screens - I just don't understand why such a former hot topic seems to have been conveniently confined to the waste bin. People who are visually impaired in any way can have real challenges on small screens - it seems no one cares any more about this, I wonder why

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