Macquarie Equities Research‘s Ben Schacter today reiterated an Outperform rating on shares of Facebook (FB), and raised his price target to $62 from $49, after concluding that its business of charging advertisers for ads that lead users to download an app for Apple‘s (AAPL) iOS or for Google‘s (GOOG) Android is increasing at a rapid clip.
“Facebook continues to gain traction with its efforts to monetize the mobile user base, with new statistics on Mobile App Install Ads,” writes Schacter, referring to the company’s program for application developers, “suggesting that growth remains strong and could generate upside to mobile ad revenue for the third quarter.”
Schacter tallies up the numbers of how many apps are being downloaded through Facebook ads:
Per FB’s official blog, 145mm installs (through the iOS App Store and Google Play) have resulted from App Install ads thus far in 2013. As FB had previously disclosed, 25mm installs in Q1 and 46mm in Q2 in a Fast Company interview, this implies 74mm installs for the third quarter (sequential growth of 84% in Q2 and 61% in Q3). Breadth of the advertiser base has also grown substantially, with total advertisers rising from 3,800 in Q1 to 8,400 in the second quarter. If we estimate ~$2-$3 per install, this implies App Install ad revenues of about $65mm in Q1, ~$115mm in Q2, and ~$185mm in Q3 (at the midpoint). Importantly, we believe that these estimated per-download fees could easily be conservative, as some game companies are already paying Facebook $3- $4+ per install through this ad product. Given the success of this product over the past few quarters, it is not surprising to see FB expand the addressable market by broadening available actions called out through the ads. FB is adding other mobile app-related calls-to-action such as Open Link and Use App, and vertical-specific actions such as Shop Now, Play Game, Book Now, Listen Now, and Watch Video. Notably, according to FB, as of the end of Q2, 50% of the top 100 gr