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Facebook Inc (NASDAQ:FB) has made no secret of the fact that it's making a big bet on video. According to one Wall Street analyst, Facebook Watch could generate more than half a billion dollars of revenue in 2018.
The Analyst
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Morgan Stanley analyst Brian Nowak has an Overweight rating and $200 price target for Facebook.
The Thesis
Nowak is projecting Facebook will spend roughly $200 million producing original video content in 2018. He expects that aggressive budget will result in an estimated 15 longer-form and 100 shorter-form series.
Morgan Stanley is anticipating mid-roll ads on these videos, with partners getting 55 percent of the split, in-line with Alphabet Inc (NASDAQ:GOOG) (NASDAQ:GOOGL)’s YouTube split. However, Nowak expects ad revenue sharing will only begin once Facebook has recovered its initial $200 billion content costs.
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“Monitoring Watch engagement trends will be critical to gauging FB's video success, and by our math FB needs to drive Watch engagement to ~2% of total core FB minutes to break-even on our base case ~$200mn content investment,” Nowak said in a note.
Broken down by user, Morgan Stanley estimates the break-even point for video represents about 7 minutes of watch time per day for each North American daily active user, or about 3 minutes per day if Facebook expands Watch outside North America to the rest of its international users.
Morgan Stanley estimates total Watch cost for Facebook in 2018 will be about $400 million once content costs and ad revenue sharing costs are factored in. However, Nowak estimates the feature could brng in $565 million in total revenue by year’s end.
Price Action
Facebook stock has continued its positive momentum in 2017. The stock has gained 51.8 percent year-to-date, roughly triple the return of the S&P 500.
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Crypto Whales Are Loading Up — Are You?
New research shows the biggest crypto buyers are back. And this time? They could hold for the possibility that Bitcoin will surpass $100,000 in 2024. You don’t want to miss the next massive crypto bull run like we saw in 2020 and 2021. To know exactly what’s going on and what to buy… Get Access To Benzinga’s Best Crypto Research and Investments For Only $1.