NEW YORK (TheStreet) -- Facebook (FB) shares were rising in early trading Friday, gaining 0.68% to $55.08 following a price target boost from Merrill Lynch, noting the social networking giant is the investment bank's "top mobile media play."
Analyst Justin Post boosted his price target to $64 from $60, noting that mobile usage (where Facebook enjoys 20%+ share domestically), as well as several other levers, including the ability to charge higher prices for ads, video ads, and Instagram, will help drive strong revenue in 2014 and 2015.
"Aided by increasing advertiser competition, we expect 2014 mobile revenue to grow 94% y/y to $5.8bn, and to drive Facebook's US ad revenue share to 10% from 8% (which is still below FB's 16% total US Online usage share)," Post wrote in a note. "Upside to our and street estimates could result from higher ad pricing growth as platform initiatives drive more advertisers on Facebook, higher engagement due to mobile product improvements and increased video usage, and the ramp up of monetization of Instagram."
Post said he expects that Facebook will continue to improve its ability to target ads to the right users and thus boost return on investment (ROI) for advertisers, which continued to increase spending on Facebook throughout 2013 judging by advertising revenue. Post is expecting 39% ad revenue growth in 2014, as Facebook continues to attract more users, get better pricing, and continue building out Instagram. He's expecting mobile revenue to be up 94%, but PC revenue will decline 5% as more Facebook users access the social network on their phones and tablets.
Last quarter, Facebook reported earnings of 25 cents a share on $2.02 billion in revenue, as mobile revenue surged to 49% of total advertising revenue, or approximately $881 million. Analysts surveyed by Thomson Reuters were looking for earnings of 19 cents a share on $1.91 billion in revenue.
The company noted it generated $1.8 billion in advertising revenue, up 66% year over year. Payments and other fees revenue came in at $218 million.
Then there's the big question of having Instagram as Facebook's next big money maker. By 2016, Post is expecting Instagram to generate $1.1 billion in sales, despite having only just started running ads late in 2013.
Facebook Chief Operating Officer Sheryl Sandberg said the recent advertising test on Instagram was going well. "And we are excited about it [Instagram ads] because there is a lot of interest and a lot of excited brands," Sandberg said on Facebook's third-quarter earnings call. "When you think about ads being exciting and engaging, I think we think about two things. We think about ads that fit the format of the product that they are part of."
Post estimated that Facebook will generate $10.4 billion in revenue in 2014, earning $1.13 a share; the analyst expects the Menlo Park, Calif.-based company to generate $13.4 billion in revenue for fiscal 2015, earning $1.49 a share. If any of these levers get pulled, and Facebook is able to extract significant amount of money from higher ad prices, the ramp-up of video or Instagram's potential, there could be positive revisions to those estimates.
Conversely, if Facebook isn't able to monetize ads as well as it has been, or if the company boosts investment spending or makes dilutive acquisitions (the company reportedly tried to buy Snapchat last year for $3 billion), then the earnings estimates could be revised lower.