NEW YORK (
(FB - Get Report) has had its share of
bumps in the road since
going public just over a month ago. One investment bank, however, believes the stock could offer as much as 25% future upside.
Nomura analyst Brian Nowak initiated coverage on the social networking giant with a "buy" rating and a $40 price target, an increase of just over 25% on Thursday's closing price of $31.84. Despite near-term issues and concerns about being able to monetize its 900 million users, Nomura believes there are three ways Facebook can improve its ability to generate long-term revenue: charging for branded pages, improved advertising units, and generating revenue from mobile.
Facebook generates the majority of its revenue from online advertising (85% in 2011, according to Nowak). As the company continues to roll out new features to keep users engaged, the analyst believes Facebook is likely to continue taking online advertising dollars away from the likes of Yahoo! (YHOO - Get Report), Google (GOOG), AOL (AOL - Get Report) and others. He believes Facebook will have $8 billion worth of display revenue by 2016, up from $3.154 billion in 2011, according to the company's S-1 filing.
Charging for business pages on Facebook is one way Nowak believes the social networker can generate significant revenue. Most businesses now have a Facebook page for their customers to "like," keeping them informed of the company's latest news.If Facebook were to charge branded pages that have over 1 million fans $1 per fan per year, this could generate an additional $1.8 billion worth of revenue in 2014. Nowak cites his belief that Twitter is thought to charge brands between $2.50 and $4.00 per year to tweet to fans, so there is a precedent. "In all, we believe that charging brands for their Facebook pages is the company's most significant incremental revenue opportunity," Nowak wrote.