MKM Sees Monetization Gap Between Instagram and Twitter (TWTR) Closing Quickly; Affirms Facebook (FB) at 'Buy'
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MKM affirms Facebook (Nasdaq: FB) with a Buy rating and $150 price target following a user update for Instagram issued on Tuesday.
Analyst Rob Sanderson commented, Yesterday, Instagram announced that the service has surpassed the 500mn milestone for monthly active users, up 25% since last September. This extends the trend of roughly 100mn additions every nine months from 200mn to the 500mn level today. We think that monetization trends vs. TWTR are relevant and bullish. A quick comparison suggests that TWTR ad monetization is more than 3x Instagram. We think the gap can close quickly as Instagram engagement trends are better and FB has superior sales and ad tech. If the gap were to completely close this year, core FB growth would have to grow by 34% to make consensus (from 54% last year, constant currency). This bolsters our confidence that FB can make and exceed expectations this year.
Sanderson also sees strong correlation with Twitter (NYSE: TWTR) on monetization. The analyst noted:
- Rough math suggests that TWTR’s ad revenue per user was more than 3x that of Instagram last year (about $6.50 vs. $2.00).
- We think this is a gap that can close quickly because: (1) user engagement trends appear superior on Instagram, (2) Facebook has best-in-class ad sales and ad tech and (3) brand marketers are enamored by the rich canvas that Instagram provides and intends to allocate more budget as inventory expands.
- If the pace of Instagram user growth continues and the monetization gap with TWTR closes completely, this would imply about $3.4Bn in ad revenue this year.
For an analyst ratings summary and ratings history on Facebook click here. For more ratings news on Facebook click here.
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