Facebook posted extremely healthy financial results yesterday. It’s recently non-existent mobile ad business is huge, and accelerating.
Then, during a conference call to discuss the results, Facebook executives said two things that sent investors fleeing.
- Executives said they do not plan to increase the number of ads shown in the Facebook News Feed in 2014.
They said younger teenagers are using the product less.
Two analysts, Douglas Anmuth of JP Morgan and Ken Sena of Evercore, say these two pieces of negative information have created a big opportunity to buy Facebook stock. Both analysts said they are more optimistic about now than they were before earnings.
Sena said he raised his price target for Facebook from $US60 to $US65 per share due to ” potential for continued user engagement growth, new ad formats, and pricing momentum, not to mention likely Instagram monetization and inroads into branded video and CRM.”
Anmuth, who also raised his price target, says he’s not worried about the decreased usage amongst teenagers.
“We think the lower daily usage is currently limited to a small portion of younger teens, likely ages 13-15, that may be using additional services such as Facebook-owned Instagram, Snapchat, and Whats App. We believe Facebook is continuing to invest in improving its standalone messaging products, which we think could address some concerns around declining teen engagement over time.”
Anmuth says Facebook is smart not to stuff more ads into the News Feed. He says Facebook’s third quarter mobile revenues grew 34% from the second quarter to the third “despite relatively modest ad load increases.” He said “users, usage, and ad quality improvements can continue to drive strong revenue growth going forward.”
For me, the obvious answer to both concerns, teens and ad load, is Facebook-owned Instagram. It’s one of the apps taking users away from Facebook, and Facebook hasn’t started putting any ads in it yet. It plans to, soon. Even better, those ads are probably going to be video ads, which will call for higher ad rates.