Brean Capital Boosts Facebook Price Target To $108, Reiterates Buy

In a report published Wednesday, Brean Capital analyst Sarah Hindlian reiterated a Buy rating on Facebook Inc FB, while raising the price target from $100 to $108. The company is in the early stages of monetizing its Owned & Operated (O&O) mobile apps, including Messenger, WhatsApp and Instagram. "Our bear case analyses demonstrate that Facebook may have an incremental $4.0bn in revenues in FY'16 from potential monetization efforts across its O&O platforms," Hindlian explained. The revenues estimates for Instagram for FY15, FY16 and FY17 have been raised from $17.1 billion to $17.3 billion, from $22.8 billion to $24.8 billion and from $29.2 billion to $31.8 billion, respectively. The EPS estimates for all three years have accordingly been raised, too. Brean Capital's check also indicate that "the budget shift to video ads and Instagram is coming from traditional advertising, in particular television, and that budgets on Facebook Core are not being impacted." The company's recent decision to open Instagram to a broader range of advertisers and to offer enhanced targeting tools is expected to be implemented via a steady, albeit slow, ramp, which will start in FY16 and continue into FY16 to include both Direct Response and Branded advertisers. Facebook is also unlikely to rush the monetization of WhatsApp. The analyst believes that the company is "building a "network effect" and seeking to have substantial user scale before enforcing fee based monetization." In order to monetize Messenger, the analyst expects Facebook to follow a ramp similar to the Korean app, LINE. The company is also making "early inroads" into the eCommerce domain with Buy Button, as well as its partnership with Shopify, Inc. SHOP. "Our initial checks suggest the market is competitive, but we believe there is incremental opportunity should in-app purchases drive conversion," Hindlian added.