On Jul 9, 2014, Zacks Investment Research upgraded Facebook Inc. (FB) to a Zacks Rank #1 (Strong Buy). A strong return of 146.3% over the past one year, long-term expected earnings growth rate of 32.1%, impressive growth in mobile ad market and a positive estimate revision trend make Facebook an attractive investment option.
Why the Upgrade?
Facebook has posted an average positive surprise of 27.34% over the last four quarters. The company’s strong growth in mobile advertising market (59.0% of ad revenues) driven by increasing mobile engagement, higher number of marketers, continuing investment in new products and robust performance of its newsfeed ads are the key growth catalysts.
Per eMarketer, the U.S. market for digital advertising is set to grow 42.0% in 2014 to $5.96 billion. According to Gartner, ad market spending is expected to hit $42.0 billion in 2017. Facebook continues to acquire start-ups to expand its ad product portfolio, which will boost its market share amid significant competition from Google (GOOGL).
Moreover, launch of App links, location-tracking mobile app, Nearby Friends, an updated Paper app and entry into the payments business through mobile wallet and remittance services are the long-term positives. The launch of mobile ad network Facebook Audience Network (FAN) significantly expands its total addressable market.
We believe that Facebook’s huge scale and loyal customer base will continue to attract app developers, helping it to further gain traction and improve monetization in the long run. The social network company will also benefit from Instagram’s strong growth momentum in the near term.
Estimate Revision
The Zacks Consensus Estimate for fiscal 2014 remained steady at $1.17 per share over the last 30 days. This represents year-over-year growth of 96.0%.
For fiscal 2015, the Zacks Consensus Estimate increased a penny to $1.56 per share over the same time frame, representing approximately 33.0% growth on a year-over-year basis.
Other Stocks to Consider:
Other players in the technology industry, which look attractive at current levels, include Autodesk (ADSK) and Intel Corp (INTC). Both the stocks carry the same Zacks Rank as Facebook.
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