GBH Insights analyst Daniel Ives says Facebook Inc (NASDAQ:FB) is no longer the “only game in town” in the social media-verse. With a slew of initiatives from Twitter Inc (NYSE:TWTR), the analyst sees reason to gain new confidence in this social media player, calling it a new “renaissance of growth” in sight. It’s not that Ives still isn’t playing favorites when it comes to Facebook’s opportunity- but there is room to get excited about Twitter again. (To watch Ives’ track record, click here)
Let’s dive in:
Facebook’s Short-Term Risk Boasts Long-Term Advantages
Speaking of number ones, Facebook continues to reign as greatest name in the game, from where Ives is standing. This is a company executing on all cylinders, from engagement to monthly active user (MAU) gains to ad growth, and metrics are looking good approaching the first half of 2018; even with “the speed bump from this News Feed overhaul.”
As such, the analyst reiterates a Highly Attractive rating on FB stock with a $225 price target, which implies a 22% upside from current levels.
First off, Ives is unfazed by the News Feed revamp, calling this a “containable” short-term risk; one that poses “long term benefits,” in fact. For context, CEO Mark Zuckberg intends to shift the News Feed content to prioritize posts about friends and family instead of ad content and promotional videos. Questions linger for investors to advertisers regarding the scope of the effects of this platform evolution. However, Ives stands by Zuckerberg and co. for playing it savvy here.
“That said, while near term this major change will cause some disruption and uncertainty for advertisers on the Facebook platform, with the right ‘hand holding strategy’ and consistent advertising ROI we see minimal negative financial implications from this move for Zuckerberg & Co in 2018,” writes Ives.
This boils down to “the right strategic move at the right time” for the following reasons: “the overhaul will: 1) drive further engagement on the platform for users over time and catalyze ad growth in the medium to longer term, 2) limited ad inventory will ultimately help drive up pricing power and more than offset decreased ad load, 3) calm political pressures and grandstanding from the Beltway which are getting louder post the Russia Meddling situation, and 4) make sure MAU growth and trends remains rock solid into 2018 and beyond.”
The shift flashes good timing on Zuckerberg’s part, Ives adds, considering the “growing scrutiny social media platforms are getting from regulators both in the US and EU around content standards and security.” Therefore, the News Feed overhaul may be a short-term concern, but the transition makes a lot of sense to the analyst. All the while, the core business model should continue as strong as ever.
Looking ahead, the analyst anticipates FB’s video chat and Portal device forthcoming at the company’s F8 Developer Conference this May- marking the titan’s first of its line of new hardware products “to get further entrenched in the consumer smart home/ecosystem.” As the company outreaches its “tentacles” into the smart home arena, Ives cheers yet another “smart move” for the titan’s powerful branding.
TipRanks indicates FB stock has earned one of the best analyst consensus ratings on the Street. Strong bullish backing circles this social media titan, with 28 out of 31 analysts in the last 3 months rating a Buy on FB stock, just 2 playing it safe with a Hold, and only 1 bear issuing a Sell rating on the stock. With a healthy return potential of 24%, the stock’s consensus target price stands at $227.79.
Twitter’s Growth and Advertising Opportunities Looking Better This Year
Twitter just won over Ives to the bullish camp on back of better advertising checks tracking well on the GBH Tech Tracker. Advertisers along with user engagement are trending quiet well so far this new year, and as far as Ives is concerned, the last quarterly show was just the crucial step forward TWTR needed.
Therefore, the analyst upgrades from a Neutral to an Attractive rating on TWTR stock while bumping up the price target from $25 to $38, which implies a 15% upside from current levels.
When delving into the TWTR “monetization and ad growth machine,” Ives says the company is at last headed “in the right direction;” even if some risks still chase the tech comeback player’s turnaround efforts.
Ives explains that TWTR stands to benefit from those nervous about rival FB’s News Feed revamp: “To this point, we believe that rich video content, targeted engagement, and stronger data analytics around advertising campaigns is the trifecta enabling Twitter to see discernible improvement in advertising/engagement metrics, which is the fuel in the engine for Dorsey & Co. for 2018 and beyond. A tailwind for Twitter in the near-term in our opinion is the Facebook News Feed overhaul, which is forcing publishers and online advertisers to ‘dip their toe in the water’ on the Twitter platform and start to ramp up ad investments on this platform.”
Ad growth and monthly active user (MAU) prospects are showing hints of life over the next half a year to full year ahead. With daily active user (DAU) gains kicking up, advertiser feedback and demand rising, paired with GAAP profitability, Ives sees “clear positives” that will help TWTR continue to make tracks through the first half of this year.
“Slowly,” but surely, this TWTR story is changing- for the better, contends the analyst.
TipRanks suggests heavy caution weighing down on TWTR shares. Out of 26 analysts polled in the last 3 months, 6 are bullish on the tech player, but a majority of 15 hedge their bets on the sidelines, leaving 5 running for the hills. The 12-month average price target of $28.23 underscores a downside potential of nearly 14% from where the stock is currently trading.