Updated from 11:46 a.m. to include information about new News Feed in the sixth paragraph.
UBS analyst Eric Sheridan boosted his price target on Facebook to $90 from $72, noting that fourth-quarter pricing strength has carried over to the first-quarter, and may be more sustainable than previously thought. "Our Q1 advertiser channel checks suggest that the pricing strength exhibited in Q4 (+92% YoY price-per-ad) has carried over into early 2014 and is likely sustainable for longer than our prior estimates had assumed," Sheridan wrote in the report. "In particular, we note the improved quality of advertisers & increased frequency of higher CPM formats (mobile app ads in particular) within the existing ad load."
Sheridan now expects Facebook to generate $11.9 billion in revenue in 2014, up from $11.1 billion, with an Adjusted EBITDA of $7.4 billion and adjusted earnings of $1.25 per share, up from $6.8 billion and $1.27a share, respectively. He also boosted his 2015 estimates, and now expects $16 billion in sales, $10.2 billion in Adjusted EBITDA and $1.80 per share in earnings. Analysts surveyed by Thomson Reuters expect Facebook to generate $11.37 billion in revenue in 2014, earning $1.25 a share, and $14.88 billion and $1.68 in 2015, respectively.
Shares of Facebook were higher in early Monday trading, up 2.8% to $71.74 on the back of the price target boost.
Much of what Facebook has been able to accomplish, particularly as it relates to mobile advertising, is app install ads, which the company launched in October 2012. Now, more than a year later, Facebook has been able to generate 145 million app installations from Google Play and Apple's (AAPL) App Store. The ads appear in Facebook's mobile app on users News Feeds, and helped the company generate $1.24 billion in mobile advertising revenue during the fourth quarter. Google is still trying to garner success with its initiative, which has links inside mobile apps to Google's search results.
The report comes as Facebook recently changed the look of its News Feed. Facebook has redesigned its desktop News Feed to be more streamlined, similar to what it has on mobile.
This comes as Facebook is set to hold F8, its developer conference for developers on April 30, in San Francisco. It's the first F8 conference since 2011, and in it, Facebook intends to help developers with getting started guides, best practices, infrastructure ideas, tips for advertising and ways to monetize the app or game the developer has built.
For the entire fourth quarter, Facebook generated $2.59 billion in sales, as advertising revenue soared 76% year over year to $2.34 billion. That allowed the company to earn 34 cents a share, beating the consensus estimates of 27 cents a share and $2.33 billion in sales.
In comparison, Google generated earnings of $12.01 a share in the fourth quarter on $13.55 billion in revenue, but the company noted cost-per-click, a key advertising metric, fell 11% year-over-year and 2% sequentially. However, paid clicks, which include clicks related to ads served on Google sites and the sites of its Network members, increased approximately 31% over the fourth quarter of 2012, and 13% sequentially.
Right now, Google is only giving links to apps on Android-based phones, but it's possible, and highly probable, that Google's initiative will come to the iPhone as well, according to an article in The Wall Street Journal. The iPhone is the most dominant smartphone in the United States, according to recently released data from ComScore (SCOR), accounting for 41.6% of smartphone subscribers.
Facebook appears not only to be doing well with its mobile install ads, but its acquisition strategy seems to be starting to pay off, as brands realize the power of Facebook, Instagram, and potentially WhatsApp down the line.
Sheridan notes that the recent global partnership with Mondelez (MDLZ) allows Mondelez to "opt into Facebook's beta-testing programs, access to research and capability building through immersion days in priority markets."
Outside of that is the recent Omnicom deal with Instagram, which Sheridan noted, per AdAge, was $100 million. TheStreet reported the deal was not valued at $100 million, with a source close to the situation labeling the price tag as inaccurate. Bloomberg later reported the value of the deal being worth $50 million.
When Facebook bought Instagram for nearly $730 million in 2012 (the reported price was $1 billion, but it included stock which subsequently fell), many questioned why Facebook CEO Mark Zuckerberg was spending such a large amount of money, but the purchase seems to have been the right move. When Facebook bought Instagram, it only had around 15 million users, and now has over 150 million, according to the most recent statistics on its blog.
The world is increasingly going mobile, and much of that time is spent inside apps, and not the mobile web. According to research firm Flurry Analytics, "...86% of time spent on mobile devices is spent inside applications, with just 14% left for the mobile web." Flurry notes that in 2014 marketers are expected to spend $2.4 billion in just the U.S. to get their apps noticed.
With mobile devices (tablets, smartphones and eventually wearables) becoming ever more prevalent, search behavior is changing. According to Flurry, "[t]he de-facto behavior in mobile is to launch an app (previously installed on the device) and enjoy the comprehensive experience offered within it. You are rarely, if ever, linked out to a mobile webpage from an app or sent to another app. Each experience is essentially an island unto itself, completely reliant on the consumer to come ashore."
Google is feverishly working to maintain its dominant position in mobile, and keep its position with its lucrative advertising and search business, which allows it to fund other ventures, including Google Glass, Project Loon, driverless cars and other projects. However, it seems like Facebook is fast closing in on Google's dominance, as the world goes mobile.
--Written by Chris Ciaccia in New York
>Contact by Email.
Follow @Chris_Ciacciaper AdAge