2012 was a tough year for Facebook Inc. (FB, Financial) from the moment of its IPO. Due to an unrealistically high initial price driven by high anticipation by investors, the company’s stock failed to meet expectations. This caused a steep decline in FB’s stock price as it fell from its initial price of around $38 to a low of around $17 within a few months. The following chart represents the trend of Facebook’s share price since its launch:
Considering the steep decline, investors lost confidence in Facebook’s stock and analysts refrained from declaring it as a profitable investment. These factors added to disappointment faced by the investors. However, Facebook seems to be moving past that phase of disappointments and the company’s prospects with regard to its market performance are becoming stronger. Currently, FB’s stock is being traded within the range of $26.11 and $26.99 and the overall trend of stock price is moving upwards.
Increased Price Target
One of the factors that have caused an instant surge in Facebook’s share price is the revised price target by the analysts at Needham & Co. The analysts increased Facebook’s target price from $25 to $33. As it can be observed that the current stock price has already crossed the previous price target, there is high anticipation among investors and analysts that FB’s stock will reach its targeted price soon. The target price is 27% higher than FB’s current share price.
Analysts also updated the revenue estimates for Facebook for the fiscal year 2013. The revenue estimate was increased to $6.5 billion from $6.27 billion, and the estimate for Facebook’s EPS was increased to 65 cents per share from 59 cents per share. According to the analysts, there is high level of confidence regarding the financial performance of Facebook in the fiscal year 2013, and it can be said with a reasonable level of certainty that investors will witness a steady rise in FB’s share price throughout the year. Currently, Facebook holds around 20 "buy" endorsements and nine "hold" or "sell" suggestions. Most of the analysts are still in the process of upgrading their ratings regarding Facebook, therefore it can be said that tables are finally turning for Facebook and this may be the right time for investors to capitalize on the positive anticipation regarding the company’s prospective performance.
Factors Responsible for Higher Revenue
Facebook has introduced a number of changes in order to optimize its overall revenue and the biggest step is the redesigning of its ad service. The recent trend has shown that a large number of users access Facebook from the mobile application for the site, and the company has started to capitalize on this fact. Initially, the ads only appeared on the web version of the site, however, Facebook has recently started selling ads that appear on the mobile version of the site. This step is anticipated to give a significant push to the company’s revenue.
Facebook has also started charging a small amount to the individuals and businesses that run pages to promote their services and products. There are a large number of businesses that depend solely upon their Facebook pages to communicate and interact with their customers, and Facebook intends to capitalize on this fact as well.
The direct competitor of the company, Google Inc. (GOOG, Financial), also earns a significant chunk of its revenue from the advertisements. However, Google has succeeded in diversifying its products portfolio over the years, therefore, there are a large number of avenues that can generate ad revenue for Google. On the other hand, Facebook only has the social networking site which can be utilized to generate ad revenue. If Facebook intends to give its competition a tough time, it will have to work on its strategy for the maximization of its revenue.
After the analysis of multiple factors that hold the potential to influence the prospective financial performance of Facebook, in my opinion, investors should buy the shares in the company. The rationalization behind this suggestion is that the share price is currently following an upward trend and the revenue of the company is expected to grow in the new financial period. Short-term investors can also capitalize on this opportunity by buying the shares at this point.
Considering the steep decline, investors lost confidence in Facebook’s stock and analysts refrained from declaring it as a profitable investment. These factors added to disappointment faced by the investors. However, Facebook seems to be moving past that phase of disappointments and the company’s prospects with regard to its market performance are becoming stronger. Currently, FB’s stock is being traded within the range of $26.11 and $26.99 and the overall trend of stock price is moving upwards.
Increased Price Target
One of the factors that have caused an instant surge in Facebook’s share price is the revised price target by the analysts at Needham & Co. The analysts increased Facebook’s target price from $25 to $33. As it can be observed that the current stock price has already crossed the previous price target, there is high anticipation among investors and analysts that FB’s stock will reach its targeted price soon. The target price is 27% higher than FB’s current share price.
Analysts also updated the revenue estimates for Facebook for the fiscal year 2013. The revenue estimate was increased to $6.5 billion from $6.27 billion, and the estimate for Facebook’s EPS was increased to 65 cents per share from 59 cents per share. According to the analysts, there is high level of confidence regarding the financial performance of Facebook in the fiscal year 2013, and it can be said with a reasonable level of certainty that investors will witness a steady rise in FB’s share price throughout the year. Currently, Facebook holds around 20 "buy" endorsements and nine "hold" or "sell" suggestions. Most of the analysts are still in the process of upgrading their ratings regarding Facebook, therefore it can be said that tables are finally turning for Facebook and this may be the right time for investors to capitalize on the positive anticipation regarding the company’s prospective performance.
Factors Responsible for Higher Revenue
Facebook has introduced a number of changes in order to optimize its overall revenue and the biggest step is the redesigning of its ad service. The recent trend has shown that a large number of users access Facebook from the mobile application for the site, and the company has started to capitalize on this fact. Initially, the ads only appeared on the web version of the site, however, Facebook has recently started selling ads that appear on the mobile version of the site. This step is anticipated to give a significant push to the company’s revenue.
Facebook has also started charging a small amount to the individuals and businesses that run pages to promote their services and products. There are a large number of businesses that depend solely upon their Facebook pages to communicate and interact with their customers, and Facebook intends to capitalize on this fact as well.
The direct competitor of the company, Google Inc. (GOOG, Financial), also earns a significant chunk of its revenue from the advertisements. However, Google has succeeded in diversifying its products portfolio over the years, therefore, there are a large number of avenues that can generate ad revenue for Google. On the other hand, Facebook only has the social networking site which can be utilized to generate ad revenue. If Facebook intends to give its competition a tough time, it will have to work on its strategy for the maximization of its revenue.
After the analysis of multiple factors that hold the potential to influence the prospective financial performance of Facebook, in my opinion, investors should buy the shares in the company. The rationalization behind this suggestion is that the share price is currently following an upward trend and the revenue of the company is expected to grow in the new financial period. Short-term investors can also capitalize on this opportunity by buying the shares at this point.
