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Cindy Reed
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Cindy Reed is a 1990 "Masters of Accounting--Tax Specialty" graduate from the Marriott School of Management at Brigham Young University (BYU), Provo, Utah. The BYU Accounting Program has been independently ranked as one of the top five accounting programs in the United States for many... More
  • Facebook Surprise--Thirteen Price Target Increases/Upgrades 2 comments
    Nov 1, 2013 11:19 AM | about stocks: AAPL, LNKD, NFLX, FB

    In searching for analyst comments with the recent Facebook (NASDAQ:FB) earnings release, I could not find many of the following thirteen price target increases/upgrades published in Marketwatch, in my E*Trade brokerage Facebook news feed, on Yahoo Facebook News Releases, with a Google Search, or anywhere else. I mainly only saw published the downgrade by BMO. These analyst opinions are important to investors, given the recent whipsaw after hours price action in FB stock from $58 to $47; and current high volume trading of over 200 million shares.

    The Facebook Quarter Earnings Slides released after hours show amazing worldwide growth in Daily Active Users, Monthly Active Users, Mobile Daily Active Users, and other metrics. This growth brought revenues and profits to impressive levels as of the end of Q3 2013. Some conservative statements during the conference call caused the after-hours whipsaw action and have hampered the FB stock today. However, investors should not take emotional actions but should look at Facebook's record of proven massive user growth. The associated growth of future financial revenue and earnings is securely entrenched and fully operational.

    The following chart shows that this week an overwhelming number of analysts validate this future growth potential:

    Analyst Ratings and Price Targets   
            
     FirmNew Price Old Price NewPast
      Target Target RatingRating
    1Wedbush72.50 58.00 OutperformOutperform
    2BTIG68.00 58.00 BuyNeutral
    3Evercore65.00 60.00 OverweigtEqual Weight
    4Needham65.00 65.00 BuyBuy
    5Topeka63.00 60.00 BuyBuy
    6Cantor63.00 40.00 BuyBuy
    7JP Morgan62.00 53.00 OverweigtOverweigt
    8Wells Fargo61.00 53.00 OutperformOutperform
    9Raymond James60.00 56.00 OutperformStrong Buy
    10Jefferies60.00 60.00 BuyBuy
    11Pivotal Research57.00 48.00 BuyHold
    12Janney56.00 50.00 BuyBuy
    13SunTrust55.00 32.00 BuyBuy
    14Deutsche Bank61.00 62.00 BuyBuy
            
     Downgrade      
    15BMO Capital50.00 50.00 Mrkt PerformOutperform

    Links to Each Analyst's Positions and Comments:

    1) Wedbush -- Michael Pachter

    2) BTIG -- Richard Greenfield

    3) Evercore Partners -- Ken Sena

    4) Needham & Company -- Laura Martin

    5) Topeka Capital -- Victor Anthony

    6) Cantor Fitzgerald -- Youssef Squali

    7) JP Morgan -- Doug Anmuth

    8) Wells Fargo -- Peter Stabler

    9) Raymond James -- Aaron Kessler

    10) Jefferies -- US Internet Team

    11) Pivotal Research -- Brian Wieser

    12) Janney Capital -- Tony Wible

    13) SunTrust Robinson Humphrey -- Robert Peck

    14) Deutsche Bank -- Ross Sandler

    15) BMO Capital -- Daniel Salmon

    Facebook Usage

    Impressive excerpts from the Facebook conference call give us background on the increasing usage of Facebook and increasing of future ad dollars. Specifically, Mark Zuckerberg stated,

    "According to comScore, around 20% of the time that people spend in apps in the U.S. alone is in Facebook services when you a lot of people in developing countries what service they care about using most, the answer is often Facebook."

    1) People are finding Facebook Ads Useful

    "The way businesses will experience this effort is that we will keep building better services for them to reach their customers with higher quality ads, more efficient leads with better targeting, better analytics and using richer formats. The way people will experience this effort is that the ads they see will become more and more relevant to their lives.

    "... a lot more people are finding their ads useful and engaging with them and the average daily actives is engaging with more than one ad per week.

    "Most people probably wouldn't expect to engage with ads that often, so I think it's a great time that people are finding ads useful and they are adding value to the experience on Facebook. I think there is still a lot of room to improve the quality of our ads and grow our business over time. So this is something that we are going to keep on investing in going forward.

    2) People spend more time with digital media (5.25 hr/day) than TV (4.5 hr/day) and up to 20% of that digital time is on Facebook

    "In 2013, for the very first time, people will spend more time with digital media than watching TV. Emarketer estimates more than 5.25 hours a day on digital services including mobile compared with 4.5 hours watching TV in the U.S.

    "Facebook is well-positioned to benefit from this shift. In the United States, Facebook including Instagram, just one in eight minutes people spend on the desktop, but one in five minutes on mobile. According to comScore, Facebook and Instagram have more mobile time spent than many of the next largest services including YouTube, Pandora, Yahoo, Twitter, Pinterest, Tumblr, AOL, Snapchat and LinkedIn combined (emphasis added). Along with this engagement, we believe that we have the best mobile ad product with ads that are integrated unit into newsfeed for people who spend the most of their time on Facebook."

    3) Increasing number of marketers spending ad dollars on Facebook both in North America and Globally

    "From brand to direct response, to local businesses to developers, more marketers are advertising on Facebook, because they recognize that our ads work to drive sales. This growth is taking place globally. In the third quarter, the number of Facebook advertisers in EMEA, nearly equaled the number in North America, reflecting global growth in our online advertising.

    4) Improving ad development and ad delivery

    "We are working in a number of areas to make the ad people see on Facebook better. More targeted ads are better and we are improving our ad targeting to increase relevance. We are investing in features like custom audience and partner categories to improve targeted. These are great tools that are still in their early days and we will continue to invest. ... We want to make it easier for marketers of all sizes to buy ads and measure their impact.

    Controversial Comment regarding Forward Ad Revenue

    During the call, comments from management indicated that they

    "do not expect to significantly increase ads as a percentage of news feed stories beyond where we were at the end of Q3. This is important because increasing ads in news feed has been a meaningful driver of our revenue growth in 2013, so this should be factored into your expectations for next year."

    This comment appears to leave some investors questioning future growth and caused a severe fading in the rally that was accompanying the Q3 2013 release.

    On a long term basis this comment is not as important because Facebook has never focused on driving ad revenue but has always stated that their number one goal was the users experience.

    It is obvious that advertisers will chase consumers, and that the Facebook advertising/consumer interaction is an important avenue for any serious advertiser to pursue.

    Impact to investors

    Since July 24th, with the Q2 2013 earnings report, the FB stock price has risen from $26 to a high of just over $54.83 on October 18th. During this time two investment camps have established a battlefield, the bulls are trenched in an "I told you so" this stock has momentum and an operating foundation that will keep growing. On the other hand the bears keep and "It is only a matter of time the stock is overbought" and have been shorting the stock.

    The movement of 250 million shares on October 31, day after Q3 earnings, is a strong indication of demand from a contingent of fund managers. With the strong Q3 2013 report those big money managers who have been waiting for a big pullback so they can finally add their chunk of FB stock to their massive portfolio will not wait much longer.

    Who sold 250 million shares? Those investors who want to take their profits off the table just in case Facebook does a major volume dump like Netflix (NASDAQ:NFLX) or Linked In (NYSE:LNKD).

    Who bought 250 million shares? Most fund managers realize that adding FB to their fund portfolio now can be compared with having Apple (NASDAQ:AAPL) positioned in your portfolio in the early 2000s.

    Summary

    With the recent conference call it is clear that Facebook is a great stock to set a long position, and it would be unwise to place a short bet against it.

    A premium multiple is warranted given that Facebook is only just beginning to realize the vast monetization potential presented by its global user base and an evolving portfolio of advertising products. I recommend that investors continue to accumulate shares of Facebook while they trade at a discount.

    Disclosure: I am long FB. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Themes: long-ideas Stocks: AAPL, LNKD, NFLX, FB
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Comments (2)
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  • wildfirexx
    , contributor
    Comments (108) | Send Message
     
    Good Info Cindy...thanks
    2 Nov 2013, 04:08 AM Reply Like
  • ddevaney
    , contributor
    Comments (254) | Send Message
     
    Thanks - I am with you regarding FB and it will again go North!
    3 Nov 2013, 08:36 PM Reply Like
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