Deutsche Bank analyst Lloyd Walmsley sees Facebook (FB) moving on an upward spiral after hosting a speaking session with a Facebook Strategic Preferred Marketing Developer in order to help researchers get a clearer picture of what’s to come in the digital revenue world. The developer manages over $200 million annually. Some of the positives Walmsley took away from his conversation were good notes on Instagram Story monetization, positive overall fourth-quarter ad trends, a likely consistent and considerable growth for FB spend in 2019, and higher click-through rates for Instagram stories than core newsfeed. The guest speaker also sees improved ad targeting and ad product. The disappointing news – core Facebook Stories monetization is not doing well.
Overall, Walmsley is bullish on the stock, maintaining a Buy rating with a price target of $195, which shows a 56% potential upside. (To watch Walmsley’s track record, click here)
“Given that many advertisers are increasingly dependent on Facebook, we foresee the broader ad community continuing to improve the Stories creative to make it work better, though we expect this to take time for smaller ad buyers. Similar to the shift from desktop to mobile, we see stories monetization switching from a headwind to a tailwind over time, likely in mid-2019 in our view,” Walmsley said.
The speaker shared that of the $200 million digital ad spend, it is likely that FB makes up the lionshare of that number, with Instagram taking up 1/3 of the spend, which is 1/6 than last year. The uptick in the Instagram spend is due to the growth in Stories, which now accounts for between 30 and 40% of the Instagram budget. The speaker suggests a big chunk of the success is attributable to using the right creative, text overlay to imitate stories people are familiar with, optimizing the landing page and listening to best practice, which are provided by the FB team.
“We think the company will have to continue to innovate on the product side before stories CPM’s reach parity with feed CPMs and conversion rates improve above the 50% – 60% discount to feed. Our other conversations on Stories with ad buyers suggest an intensity in focus on making it work but no consistent message that it is working at scale. We heard from a small ad buyer working with a handful of SMB clients recently that said Stories worked well for retargeting users already familiar with a brand, particularly encouraging given the small size of the buyer,” the analyst explains.
Alphabet is a Wall Street favorite, earning one of the best analyst consensus ratings in the market. TipRanks analytics exhibit FB as a Strong Buy. Out of 40 analysts polled in the last 3 months, 33 are bullish on Facebook stock while 6 remain sidelined and 1 is bearish. With a return potential of about 50%, the stock’s consensus target price stands at $187.75. (See FB’s price targets and analyst ratings on TipRanks)