Market Overview

Can Facebook Continue To Grow Ad Business? In A Word, Yes

Share:
Can Facebook Continue To Grow Ad Business? In A Word, Yes

Since late 2016, Facebook Inc (NASDAQ: FB) investors have increasingly debated the sustainability of Facebook's advertising and overall revenue growth over the medium term. But, UBS is bullish on the company's prospects to increase its ad revenues in the medium term.

Analyst Eric Sheridan expects Facebook to increase its ad revenues at about 28 percent over the next three years, driven primarily by Instagram. Sheridan’s channel checks suggest other key drivers being video and eCommerce.

Facebook remains among the best positioned companies to capitalize on the continued shift in ad spending from TV to digital platforms.

“Specifically, we believe the secular shift towards mobile advertising, growth in users & engagement, and ad innovations (video Ads, Dynamic Ads, etc.) will drive FB's ad revenues over the next few years,” Sheridan wrote in a note.

As a result, the analyst expects video ads revenue to grow significantly over the next few years, accounting for about 18 percent of total advertising revenues in 2019.

Consequently, the analyst raised his Facebook advertising revenue growth estimate by about 2 percent in 2017 to $36.8 billion and about 5 percent in 2018 to $46.8 billion.

Accordingly, Sheridan now expects $31.49 billion of core Facebook ad revenue in 2017 and $39.32 billion in 2018. The analyst also raised his Instagram revenue estimates to $4.25 billion and $5.89 billion in FY2017 and FY2018, respectively.

EBITDA Margins, Emerging Businesses

In addition, Sheridan noted that the social media giant could “possibly” maintain flattish EBITDA margins despite high levels of opex growth over the next 2-3 years.

Sheridan is also constructive on the long-term potential of Facebook's emerging businesses such as Messenger, WhatsApp and Oculus, given their alignment with themes like mobile messaging and next-gen hardware.

“We continue to see FB as a core large cap Internet holding for strong revenue growth at reasonable valuation multiples against 2-3 year growth,” Sheridan added.

Sheridan maintained his Buy rating on Facebook and raised the price target by $10 $165.

Related:

Facebook Takes A Page Out Of Snap's Book... Again

How Can Social Media Ruin Your Case?

Latest Ratings for FB

DateFirmActionFromTo
Jan 2021BMO CapitalUpgradesMarket PerformOutperform
Jan 2021KeyBancMaintainsOverweight
Jan 2021Morgan StanleyMaintainsOverweight

View More Analyst Ratings for FB
View the Latest Analyst Ratings

 

Related Articles (FB)

View Comments and Join the Discussion!

Posted-In: Eric Sheridan UBSAnalyst Color Analyst Ratings Tech Best of Benzinga

Latest Ratings

StockFirmActionPT
NEPCredit SuisseMaintains86.0
DTEMorgan StanleyMaintains128.0
HALCredit SuisseMaintains16.0
DRHMorgan StanleyMaintains8.0
DKSMorgan StanleyMaintains75.0
View the Latest Analytics Ratings
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Premarket Activity
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Fintech Focus
A daily collection of all things fintech, interesting developments and market updates.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at vipaccounts@benzinga.com