Mizuho Securities began covering Facebook Inc (NASDAQ:FB) on Thursday afternoon. The research firm put a Neutral rating on stock in the social network, but gave the firm’s prospects a positive appraisal. Neil Doshi, who wrote the report for Mizuho, said that “FB is evolving into a true platform where people are spending more time on the site.”
The positive report comes in around the middle of Wall Street’s opinions about Facebook. Mr. Doshi’s $104 price target is a little higher than the Street average of $96, but many research firms have not updated their targets since Facebook’s bull run began about one month ago.
Facebook heads higher on Wall Street boost
Mr. Doshi said that there were three key things to look for at Facebook, one in each time frame. In the near-term video ads are going to drive sales higher. The Mizuho checks show that ad firms are very positive on the Facebook entry into the video ad world and that sales could be driven higher very quickly in the space.
In the medium term the best runner for Facebook is in Instagram says Doshi. The image-sharing service will likely have more than 1bn users by the end of the year according to research from his firm. Ad sales are likely to hit $3bn for the full year, and they’re bound to grow as the network scales up and stuffs more ads into user feeds.
That makes Instagram worth around $26bn today says the Mizuho research team. That makes the photo-sharing site worth about 10% of the whole of Facebook, and a great deal more than the $1.1bn that Mark Zuckerberg splashed out on the profit-less service just before his firm’s 2012 IPO.
In the long term, it all comes back to the shaping up of Facebook as a “true platform.” Mizuho reckons that there is an easy $1bn per year to be made from the users of WhatsApp and Messenger, and that’s just the start of what Facebook will be able to do as it becomes a key platform for all things social.
Facebook will venture into new platforms in the years ahead, and some of them may be big hits. The firm is working on the Oculus Rift right now. That tech is set to hit the growing VR games market this year, and may become the basis of a new Facebook business a few years down the line.
At the same time Facebook is getting into TV and recently secured short term deals with both Amazon.com Inc. (NASDAQ:AMZN) and HBO in order to test it
Facebook growth surge ahead
Facebook might end up slowing down or failing to produce the kind of cash it expects from those services, but the firm’s future seems set on a path of fairly stable growth all thanks to the platform model that Mark Zuckerberg has created at the firm.
The $104 price target is a conservative estimate and simply prices in coming sales from Facebook’s major businesses. Unlike the higher price targets from Wall Street, Mr. Doshi is not looking many years ahead in order to value the Menlo Park firm.
This being his first report on Facebook, Mr. Doshi has toed the line an stayed away from making any out of bounds forecasts about the firm’s future. The current Wall Street high target on Facebook sits at $120, but most of those working on the firm’s stock have yet to price the recent rally into their thinking.
In the last month shares in Facebook have risen by close to 10%, and in the last year shares have gained more than 35%. That sustained rally was based on high expectations from Wall Street and Facebook’s growth into new markets like video and news.
If those hopes don’t continue to expand, the firm’s share price may stall until a renewed catalyst is able to drive them in one direction or another.