A screaming buy. That’s how investment management firm Gainsboro Capital (GC) refers to Facebook (FB) stock even after a tumultuous year. The company dealt with scandal after scandal. Data breaches created a wave of insecurity among users and investors. Fake news became a household phrase and the company’s management dispersed into the Silicon Valley as employees began feeling uncertain about the organization’s future. Despite the unrest, GC maintains a bullish attitude toward the social media giant’s stock, saying the sentiment comes from a growing advertisement market and aspects of the network that are currently undervalued. GC sees nearly 30% upside for FB stock with price target of (To watch GC’s track record, click here)
The firm says Instagram and WhatsApp continue to see a growth in users, which creates a competitive position for advertising. While Facebook itself is decelerating in user growth, Instagram and WhatsApp continue to churn out the numbers. Over the summer, Instagram had 1 billion monthly average users (MAU). In February, WhatsApp had 1.5 billion MAUs. Importantly, GC considers Instagram to be in its infancy when it comes to monetization.
The numbers are striking. Piper Jaffray released statistics showing 85% of teenagers use Instagram at least once per month, which is up 3 percentage points when comparing the data to the previous year’s. 70% of teenagers also stated they preferred to be targeted by brands through Instagram, with Snapchat coming in second.
GC says the data is positive: “This is more than beneficial to advertisers, who are putting more content out there as a means to grow their business.”
The blogger referenced a comment from FB’s Sheryl Sandberg who spoke on the third quarter conference call. Sandberg said in Q3, the company improved how ads from News Feeds look in Stories. It’s important for advertisers like Pandora, which found a 10% lower cost per view than stand-alone campaigns the company had previously been relying on. The technology has made it so that Pandora simply checks off a box in the ad tool for advertisements which are shown on Facebook and Instagram.
“This flexibility reflects Facebook’s attention on providing quality services. Some may tout that this leaves money on the table, and adversely impacts Facebook’s ad pricing. Yet in the grand scheme of things, such versatility in the way businesses can advertise is essentially contributing to a higher advertiser lifetime value and widening Facebook’s moat. Facebook advertisers chuck money into ad campaigns, which in turn fuel results, which in turn increases the dependency factor, ultimately making switching to an alternative (of which there are a few as effective as Facebook) costly and even risky,” the blogger asserts.
GC goes on to note there are some hidden gems within the network — like Facebook Marketplace. Data showed the page had more than 800 million users in its most recent quarter. GC points out that eBay reported 177 million users in the third quarter, with a market capitalization of nearly $30 billion. The blogger suggests with numbers like this, Facebook Marketplace could soar into new heights.
“Looking ahead, we foresee Facebook’s multiple expanding over time to properly reflect their bright growth prospects and underlying fundamentals. Over time, we see earnings continuing to grow at a robust pace, with shareholders reaping the benefits of heavy investments in R&D and security,” GC concludes.
Overall, social media empire Facebook remains a Wall Street darling. This “Strong Buy” stock has received 33 ‘buy’ ratings in three months versus 5 ‘hold’ and 1 ‘sell’ ratings. With a potential upside of nearly 40%, the stock’s consensus target price stands at $187.75. (See FB’s price targets and analyst ratings on TipRanks)