It's begun: Wall Street is already putting out ratings and reports on Facebook.
First out of the gate: Michael Pachter at Wedbush, who has put a $44 target and an 'Outperform' rating on Facebook.
Here's are the two key paragraphs:
We are initiating coverage of privately held Facebook, Inc. with an OUTPERFORM rating and a 12-month price target of $44. Facebook is a social networking service and website that enables its users to connect, discover, express, and share their lives. It is one of the world’s most popular websites in terms of usage, with significant growth opportunities around the world, in our view. The Facebook initial public offering is expected to occur in May 2012.
So why the bullishness?
This is a quick summation of Pachter's key points:
- The growth story isn't over. Worldwide advertising spending is $588 billion, and there's plenty of room for Facebook to grow more.
- What's more, the internet itself is still growing, and in many emerging economies, there's plenty of upside for Facebook in terms of usage share.
- Mobile: Monthly active users are growing at double the rate of total active users. Furthermore, Pachter notes that mobile revenue is virtually nil at this point, offering a large upside. He also foresees an opportunity to do mobile/local deals.
- Payments: By 2016, sales of virtual goods will grow to $14 billion from $9 billion in 2011, offering a lot of opportunity for Facebook.
- There are other possibilities too for new revenue: Curated, social-based search, data mining and data sales, selling 'likes' to advertisers, and even direct product sales to users, such as one-click music track purchases.
Our 12-month price target of $44 reflects 22x our 2015 EPS estimate of $2.00. Facebook’s underwriters have indicated a preliminary pricing range of $28 – 35. At these prices, demand for Facebook shares will likely outstrip supply, and we expect the shares to trade up. We think that given the huge upside potential for revenue and earnings growth, a $44 target price is warranted.
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