Technology analysts explain why they are bullish on social media leader Facebook Inc (NASDAQ:FB) and e-commerce giant Amazon.com, Inc. (NASDAQ:AMZN). One analyst describes what he expects coming out of Facebook’s F8 developer conference, noting potential strategy changes and new product capabilities. The other points to recent Amazon Web Services success and its potential to drive substantial growth for the company going forward.
Wells Fargo analyst Peter Stabler gave his two cents on Facebook ahead of its F8 Developer conference set for today and tomorrow. The analyst explains what he expects from the company coming out of the conference as well as the resulting catalysts. The analyst believes Facebook will move away from third party developers despite the “key traffic driver (via mobile app install /engagement ads) and monetization source” role the company serves for developers, due to the announced shutdown of its third party platform, Parse. This leads the analyst “to believe that FB may have something new and substantial on its agenda for F8.”
The analyst mentions the recently buzzed about “chat box” application programming interface (API) for Facebook Messenger “which would allow developers to embed content and ‘calls to action’ within automated chats.” The analyst explains the benefit of such a capability as well as the competitive advantages over Twitter, as the latter recently incorporated direct messenger links in Tweets to optimize customer feedback collection. He states, “We believe an API would meaningfully accelerate enterprise adoption of chat for customer relationship management (CRM) and commerce. We believe an API could also challenge TWTR’s CRM ambitions…”
Stabler also notes a high likelihood of chat monetization through Facebook’s News Feed and Messenger platforms. The analyst believes Facebook unique strengths will enable to the company to be successful in this endeavor. He notes, “Given FB’s enviable consumer data trove and massive audience reach and frequency, we would expect a high level of marketer interest in opportunities to drive data-rich, one-to-one consumer interactions via Messenger.” Stabler also believes that Facebook’s AI capabilities will enable the company to better gauge demand. According to the analyst, “enhanced chat” should also increase the time users spend on Facebook, driving more traffic to its other developments.
Overall, the analyst sings Facebook’s praises regarding “audience scale, targeting capabilities, and social connectivity” which are attractive to all markers. He concludes, “We view marketer participation on the FB platform as compulsory, and expect FB to be the leading share beneficiary of funds flowing to social and mobile ad platforms.”
The analyst reiterates an Outperform rating on the company without a price target.
According to TipRanks, Peter Stabler has a 63% success rate recommending stocks with an average return of 24% per recommendation.
Out of the 35 analysts who have rated the company in the past 3 months, 31 gave a Buy rating, 1 gave a Sell rating, and 3 remain on the sidelines. The average 12-month price target for the stock is $134.79, marking a 24% upside from where shares last closed.
Analyst Justin Post of Merrill Lynch commented on the recent success of Amazon’s connected cloud service, Amazon Web Services, pointing to new products and international expansion as drivers of growth going forward. With a growing trend and adoption of the cloud, the analyst has an optimistic view on “Amazon’s strong infrastructure-as-a-service (IaaS) market position, growing addressable market, revenue scale and margin trajectory.”
Post points to new product announcements in the AWS sector as the company’s commitment to “moving up the SaaS enterprise value chain”, which will grow its TAM (total addressable market). With a $1 billion revenue run rate as of November 2015 as well as recent expansion in South Korea and planned 2016 expansion in Ohio, Montreal, India, the U.K, and China, the analyst predicts the company will “capture 54% of the $22.7bn IaaS/PaaS market in 2016, and will increasingly build out its SaaS portfolio.”
Post points to a 55% y/y growth trajectory for AWS in 2016, reaching $12.2 billion in revenue. The analyst point to AWS as one of the company’s strongest segments, with its success is funding the company’s other endeavors. He explains, “Given AWS’s margin profile and rapid growth, AWS is now a big driver of Amazon’s overall profitability and an enabler of Amazon’s big strategic investment initiatives (Prime Video, Prime Now, new AWS products, logistics vertical integration, India, etc.).” If growth continues at this pace, Post projects AWS valuation of up to $98 billion, or $202 per share in the long-term, as he estimates AWS revenues of $34 billion by 2020.
Post maintains his Buy rating on the company with a $750 price target.
According to TipRanks, Justin Post is ranked #26 out of 3,857 analysts. He has a 70% success rate recommending stocks with an average return of 20.4% per recommendation.
Out of the 36 analysts who have rated the company in the past 3 months, 32 are bullish and 4 remain on the sidelines. The average 12-month price target for the stock is $750.06, marking a 26% upside from where shares last closed.