Facebook Inc. (FB) has managed to come full circle from its devastating initial public offering (IPO). In a period of about 15 months it saw its shares dive from the day of the IPO, promptly losing more than half of the value. But Mark Zuckerberg proved a few points to build a better business model, rather than just build a better product. After showing it could win in mobile, Wall Street and Main Street are now cheering the social media giant. One analyst team sees shares of Facebook hitting new all-time highs, and they are matching the highest listed analyst price target on Wall Street.
Sterne Agee's Arvind Bhatia and Brett Strauser have reiterated a Buy rating on Monday, but the price target has been raised to $50. What is important is that this $50 price target now matches the highest estimate on Wall Street. The team sees Facebook doubling its share of online advertising in the next four or five years from about 5% total market share now.
Revenue estimates have been raised as follows: to $7.2 billion from $7.0 billion for 2013, to $9.1 billion from $8.5 billion for 2014 and to $11 billion from $10.1 billion in 2015. The team also raised its earnings per share estimates as follows: to $0.66 from $0.65 for 2013, to $0.99 from $0.91 in 2014 and to $1.23 from $1.10 in 2015.
The team noted several key defining points for Facebook. It said:
First, we think FB continues to be very successful on the mobile platform. Second, we see video advertising and Instagram as two near-term opportunities and catalysts to the stock. Third, we see operating leverage returning to the model in 2014. Fourth, we think Search, Payments and Gifts remain large incremental opportunities for FB in the medium to long term.
On the risk side of the equation, the team said:
In terms of risks, we think the biggest challenge for FB is to increase user engagement levels while continuing to increase monetization. While we don’t think the two are mutually exclusive, we do think it is critical to strike the right balance. We think, if needed, FB will be willing to delay monetization and not sacrifice user experience/ engagement. Another near-term risk is tough second half comparisons. However, we believe this issue is well known.
Be advised that Facebook already is challenging the post-IPO high. The social media giant's stock hit $44.70 in early Monday trading, against a 52-week low of $18.55. The official high on the day of the IPO was $45.00, although we would caution that many have called that a fictitious high after the IPO priced at $38, opened at $42.05 and was then riddled with problems -- many investors did not even realize that they were awarded shares until the following Monday.