FB: Targeting on the Future

12/22/2015 9:41 am EST

Focus: STOCKS

Michael Berger

President & Founder, Technical420.com

Since the Internet continues to grab market share and its percentage of consumer media time in the United States continues to grow, Michael Berger, of Technical420.com, highlights the reasons he continues to view this company as a top investment idea in the online media sub-sector.

With global market volatility running high, investors are looking for stocks that will protect and preserve their wealth. We have been able to identify a company that not only provides these characteristics, but also provides significant upside potential.

We continue to view Facebook, Inc. (FB) as a top investment idea in the online media sub-sector given its mobile exposure and growing time share in the category, improving ad targeting, video traction, Instagram ad ramp, and growth of new platforms.

When looking at the big picture, we like the stock because the Internet continues to grab market share and its percentage of consumer media time in the United States continues to grow. With the Internet capturing more than 40% of consumer media time in the United States and FB capturing 20% of Internet time, the company has a $40 billion advertising opportunity.

Potential Upside Drivers

Some of the potential upside drivers for FB include: 1) the success for new ad format and ad format changes, including carousel ads and a Buy button, 2) growing video usage which could benefit ad pricing; and 3) new ad spend from Instagram.

We expect FB to continue to execute during 2016 and Instagram will play a key role in this. Instagram generated over $300 million in advertising revenue during 2015 and we expect this number to surpass $1 billion during 2016. Another major benefit for FB during 2016 is the Olympics and the United States Presidential Election. These events should drive engagement growth as the company approaches 2017.

Outlook

During 2015, FB has performed well and shares have rallied more than 34%. Even though shares have been performing well, positive sentiment and valuation remain a concern for some investors as we approach 2016. We view FB’s valuation as more attractive and defensible than its social media peers.

Although FB has done a great job executing on recent initiatives, the company will have to monetize a new platform over the next two years. Luckily for FB, they have several platforms to choose from (search, messaging, and Oculus). We think FB has many growth levers that will deliver upside to Wall Street estimates. These include: 1) improved targeting and new ad formats, 2) rollout of more video ads, 3) continued monetization of Instagram, and 4) managing operating expenses.
 
The stock could see weakness if ad spending growth is slower-than-expected, Europe remains weak from a currency standpoint, or dilutive acquisitions.

Michael Berger, Founder and President, Technical420.com

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