Facebook Is Dominating The Ad Game, And It Still Has Room To Grow

MKM Partners’ Rob Sanderson believes Facebook Inc (NASDAQ: FB) “is benefiting from (and driving) the shift in ad budget allocations from other media to mobile internet and we think this story is still early.”

Sanderson maintains a Buy rating on the company, while raising the price target from $135 to $150.

Robust Growth Continues

The analyst said he continued to like Facebook “as by far the dominant growth vehicle among mega-cap TMT stocks.”

While both core Facebook and Instagram continue to see robust growth, Sanderson stated that the next wave in message was “beginning to take shape.”

The Advertising Pie

With regard to the allocation of dollars between television and digital advertising properties, Sanderson pointed out that U.S. ad revenue among the top 15 platforms had accelerated to 15 percent over the last two quarters, from 9–10 percent.

According to MKM Partners’ tracker, Facebook’s share of the allocation rose to 10 percent by 1Q16, doubling over the last two years, with the total pie had also grown 25 percent during the same period.

Consensus expectations suggest an increase of 15 percent in the total spend in 2016, with Facebook’s share expanding another 200 bps by the end of the year.

Sanderson also noted that the company’s advertising revenue continued to grow at a 63 percent constant currency rate, with both core Facebook and Instagram driving ad growth acceleration.