SAN DIEGO, CALIF. (TheStreet) -- What's not to like about Facebook (FB) ? That's the consensus of MKM Partners, which Friday initiated coverage with a "buy" rating and a $105 price target on confidence in the company's ability to break the here-today, gone-tomorrow curse associated with social networks thanks to its ownership of Instagram and WhatsApp.
The $105 price target is a 40% premium over Thursday's close price of $75.24, and would make Facebook's market cap nearly $300 billion, compared to just under $210 billion as of yesterday. The firm is particularly bullish on Facebook's business model, which comes without the burden of traffic acquisition costs, and its long-term ability to juice revenue with help from video ads. Video ads are "likely the largest growth driver for the next decade," according to MKM Partners analyst Rob Sanderson.
MKM Partners expects Facebook to grow annual revenue to $41 billion by 2018, with Instagram and WhatsApp collectively contributing 18% to the top line.
Instagram, in particular, stood out to the firm as a major contributing factor to Facebook's longevity. The photo-centric social network, now with more than 200 million active users, could have made a sizable dent in Facebook's popularity and livelihood had it remained independent.
"We view social networks as inherently unstable and consider disintermediation by 'the next cool thing' the greatest risk to FB. The acquisition of Instagram took out the largest medium term risk to FB," Sanderson wrote in the firm's Friday report. "For any network instability to manifest, there must to be a cutting edge platform for these power-users to leave to. Instagram was a very real threat."