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Analysts’ Second Look at Facebook Raises Price Targets

9 Jan, 2013 By: Doug McPherson

NEW YORK – The face of Facebook should be smiling today: J.P. Morgan has raised its price target for Facebook 21 percent to $35 per share from $29 previously. Why?

J.P. Morgan says there are three key reasons: recent feedback from marketers on its mobile and news feed ads; Facebook’s ability to leverage third-party data; and its custom audiences platform.

Merrill Lynch analyst Doug Anmuth agrees that the outlook for Facebook is sunnier than once forecast. “We believe Facebook's advertising revenue will accelerate at least through [the first quarter] and we are raising our advertising estimates 6 percent to 7 percent for 2013 and 2014,” he wrote in a report to investors.

In September, Anmuth slashed his year-end 2013 target price for Facebook shares by one-third, from $45 to $30, saying at the time that he expected revenue from games to slide. According to Forbes, Anmuth wrote:

“[It is] very early in the trajectory of Facebook’s mobile advertising. Marketer feedback on mobile and news feed ads has been positive. 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.”

Anmuth also pointed to strong Facebook campaigns from Samsung Mobile USA and Pepsi, Forbes reports.

MediaPost reports that Merrill Lynch is especially positive on Facebook’s progress in developing a mobile advertising infrastructure along with 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 Facebook ad spend.”

While showing some positive uptake among advertisers, the Merrill Lynch analysts estimated that the Facebook Exchange still currently accounts for less than 10 percent 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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