WALL STREET: Sterne Agee Rates Facebook As ‘Buy,’ Sets $37 Target Price

Sterne Agee pressed the like button on Facebook in a research note Monday, rating its stock “buy” and setting a target price of $37 per share, and citing the social network’s mobile progress and growth by its Facebook Exchange real-time ad-bidding product, Barron’s reported.

The analysts also believe Facebook’s upcoming video ads will drive growth in 2014.

With Facebook’s second-quarter earnings call set for Wednesday afternoon, Sterne Agee offered some pre-call predictions:

  • Revenue of $1.6 billion, up 35 percent from the second quarter of 2012.
  • Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) of $873 million, up 34 percent compared with the year-earlier period.
  • Mobile advertising revenue of $430 million, up 15 percent from the first quarter of 2013.
  • A daily average mobile ad revenue run rate of $4.8 million, up from $4.15 million in the first quarter and $3.4 million in the fourth quarter of 2012.
  • 70 percent of Facebook users accessing the site via mobile devices, up from 68 percent in the previous quarter.

Sterne Agee wrote on FBX and video ads:

In late first quarter/early second quarter, Facebook began offering FBX ads (retargeting) in the Facebook News Feed. As expected, these ads appear to be much more effective than those on the right hand rail on desktop. According to AdRoll, in a study of 547 advertisers representing more than 1 billion ad impressions, FBX News Feed ads had a 49 times higher CTR (click-through rate) over FBX sidebar ads and 21 times higher CTRs over Web retargeting. In addition, these ads had a 54 percent lower CPC (cost per click) than sidebar ads and 79 percent lower CPC than Web retargeting. These statistics are impressive and bode well for the potential from FBX.

Facebook recently began offering Video on Instagram, the first step before offering video ads on that property (in our opinion). Additionally, there is continued speculation that auto-play video ads will begin appearing in Facebook News Feed before year-end. According to comScore Video Metrix, Facebook is already the second-largest online video content property in terms of unique viewers (61.6 million, versus Google at 158 million).

Readers: What did you think of Sterne Agee’s predictions for Facebook’s second-quarter numbers?

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