Facebook's (FB) New Source of Revenue Growth Comes at Google's (GOOG) Expense

September 5, 2013 11:34 AM EDT
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Pivotal Research maintained a Buy rating on Facebook (NASDAQ: FB) and raised its price target to $48.00 (from $35.00). Analyst Brian Wieser noted strong performance with large brands, and he pointed to an important and perhaps somewhat overlooked opportunity with small businesses. He sees this as a significant source of the company's recent revenue gains. In his view, these gains come at the expense of Google's (Nasdaq: GOOG) paid search business.

"We think that small business spending on Facebook may be a significant source of the company’s recent revenue gains, and at the expense of Google's paid search business, where small businesses dominate. In the United States alone, we estimate that there are 3.2 million companies with assets of less than $10mm which spent $31 billion on advertising during 2010. By our estimates, more than a third of this spending goes into paid search but only a few percentage points goes to Facebook presently," said Wieser.

"Our current read on the US advertising market suggests that paid search grew by 11% in 2Q13, 13% in 1Q13, 11% in 4Q12, 18% in 3Q12, 21% in 2Q12 and 26% in 1Q12. Some of this deceleration is likely due to market saturation, as most small businesses are likely by now already buying paid search, and not adding to their individual budgets by much. While it may be partially coincidental, the timing of deceleration approximately matches the timing of Facebook's launch of Promoted Posts (a flagship small business advertising product) in June of last year," added the analyst.

For an analyst ratings summary and ratings history on Facebook (NASDAQ: FB) click here. For more ratings news on Facebook click here.

Shares of Facebook closed at $41.78 yesterday.

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