Facebook (FB) Watch is booming, and with its success it is clear that Facebook is looking to expand into different adjacent sectors, hoping to evolve into the well-rounded service that WeChat has become in China.
Although Facebook’s Libra cryptocurrency announcement attracted a lot of attention this past week, Deutsche Bank analyst Lloyd Walmsley believes that Facebook Watch should help drive advertising growth for the company in the medium to long term.
In large part due to Facebook Watch’s impressive success, Walmsley has raised his price target for FB from $220 to $230, while rating the stock a Buy. (To watch Walmsley's price target, click here)
Launched in 2017, Facebook Watch is growing rapidly year over year, with over 720M people who spend at least 1 minute in Watch every month. Daily, over 140M people spend at least 1 minute in Facebook Watch, with the average viewing time at 26 minutes. The platform is a gold mine for Facebook and should challenge YouTube for the profitable video advertising in future years. Walmsley believes that Facebook Watch is “highly monetizable,” and “could generate $5B or more… as early as 2021.” With online video exploding, advertisers are hungry for safe videos to advertise, an issue which has challenged YouTube and its parent company Alphabet in the past. If Facebook can make sure the content on Facebook watch is clean and free from controversy, it should rake in the revenue as Walmsley predicts.
In addition to Facebook Watch, Walmsley is keeping an eye out for Facebook’s Q2 call. The analyst is looking forward to hearing about the overall advertising trends, as well as Instagram Checkout, which is new to the Instagram platform. Checkout should help boost ad spending on Instagram, which has not been squeezed as much as the Facebook platform for ad revenue. Checkout is still in beta form, so if it is successful a wider rollout should be an interesting catalyst for the company. Finally, Walmsley is interested in hearing if political ad spending is rising as we move closer to the 2020 US elections, especially with the backdrop of the 2016 election interference hanging over the company in recent years. Walmsley says that “2019 and 2020 US political advertising spend is supposed to grow >100% vs. the 2015 and 2016 election year to a total of ~$3.7B.” The analyst expects Facebook to continue to be a major player in political advertising going forward, as its ability to target certain segments of the population is second to none.
All in all, this ‘Strong Buy’ stock has scored unanimous bullish attention on the Street, with 35 analysts polled in the last 3 months rating FB a 'buy', while only 3 rate the stock a 'hold.' The 12-month average price target stands at $220.48, marking 17% in return potential for the stock.
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