UBS has raised its outlook for Facebook stock, from a $US155 price target to $US165, partially after deciding that Mark Zuckerberg’s ambitious 10-year plan for the social network will result in real revenue.
In early 2016, Facebook CEO Mark Zuckerberg laid out a vision that sees the company investing heavily in artificial intelligence, virtual reality, global connectivity, and chat platforms like Messenger and WhatsApp, all of which have yet to generate significant revenue.
In a new note to clients, UBS notes Wall Street concerns that Facebook is making a risky bet on cutting-edge technologies that may never feed back into the company’s core businesses, hobbling revenue growth. But UBS says that its own research indicates that those fears are unfounded, and these big bets will pay off.
“We are constructive that over the next 2-5 years, FB Messenger, WhatsApp & Oculus will move from a focus on user growth & ecosystem investments to monetisation engines inside broader Facebook,” UBS writes. “While we do not expect meaningful revenue contribution from these businesses over the medium-term, long-tailed opportunities exist given sizable runway & multiple paths to monetisation.”
For example, UBS expects that eventually, Oculus will adopt a business model where it charges developers to make VR software for its headsets — the same model used by Sony, Microsoft, and Nintendo for their game consoles.
UBS also reiterated its “buy” rating of Facebook stock.
In the meantime, however, Wall Street shouldn’t discount the fact that Facebook and Instagram are still finding new ways to display ads via video and images, according to UBS. Combine that with the fact that people are spending more time in those apps, UBS says, and it should mean that the company will do just fine.
It should also be noted that UBS is far from the only analyst firm bullish on Facebook, with Wall Street praise in high supply following its most recent blockbuster earnings call.