FBR Capital Reiterates Facebook (FB) Outperform Rating Ahead of Earnings

FBR Capital analyst, William Bird, believes Facebook's (NASDAQ: FB) setup into the quarter is constructive and that Comscore usage trends, Nanagan's industry tracking data and the introduction of Instagram inventory bode well for the stock into earnings.

In the context of a less-than-certain macro environment, FB offers scarce large-cap media growth and attractive structural exposure to the rise in digital precision brand advertising, a megatrend that is drawing more brand advertising dollars online.

comScore usage trends for 4Q suggest continued progress in FB’s mobile usage share with FB’s U.S. mobile usage share in December at 19%, up from 18% in November (excludes Instagram and WhatsApp). FB’s U.S. smartphone minutes increased 14% YOY.

According to Nanigans, FB’s global CPM increased a still-healthy 45% YOY in 4Q to $6.38. An increased mix of video ads, algorithmic performance improvement, improved attribution from increased m-commerce, and continued ad-unit innovation (e.g., dynamic ad products, carousel ads, etc.) is supportive of higher pricing.

The December quarter was the first in which Instagram ad inventory was made available to all advertisers. We believe Instagram has the potential to contribute approximately 7 points to FB’s ad growth in 4Q. Though Instagram is in the early stages of monetization, if it can achieve FB-like ARPU—and it should clearly benefit from FB’s data assets and learning curve effects—then we believe revenue potential could approach $5 billion on its current user base, which continues to grow.

No change to Outperform rating and $125PT.

FB is expected to report results on 1/27 after the market close.

For an analyst ratings summary and ratings history on Facebook click here. For more ratings news on Facebook click here.

Shares of Facebook closed at $97.94 yesterday.

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