Facebook's Secular Trends Toward Mobile, Accelerating Shift Of Ad Dollars

With shares up 15 percent so far this year, Facebook Inc FB was just doing too well for BTIG Research not to have a Buy on the stock.

The firm upgraded Facebook from Neutral to Buy and announced a $175 price target Tuesday, citing the continuing shift of advertising to mobile and positive signs from both Instagram Stories and Facebook’s video platform.

“Not having a Buy on Facebook has clearly been a mistake in 2017 and we are simply not going to allow that mistake to continue,” analyst Richard Greenfield said in a note.

Neutral No More

BTIG previously downgraded Facebook to Neutral on July 22, 2016. At that time, the firm felt investor expectations were ahead of themselves, Greenfield said in Tuesday’s note.

Facebook outperformed on earnings in the second and third quarters of 2016, but shares stagnated “on fears of a meaningful deceleration in growth starting in 2017,” according to BTIG.

That trend reversed following Facebook’s stellar fourth quarter results and positive developments at the social platform so far this year.

Facebook Benefiting From Mobile Growth

BTIG is projecting revenues of $38.7 billion for Facebook in 2017, a 40 percent increase in their estimate. The firm projects revenues of $51 billion in 2018, a 32 percent increase from the prior estimate.

Facebook is taking advantage of mobile advertising in a way legacy media companies are not, according to the firm.

“We believe legacy media companies are increasingly at risk of being displaced by platforms, such as Facebook, that enter the content space.”

Video Pays Off For Instagram, Facebook 

The Aug. 2, 2016, launch of Instagram Stories — a disappearing video story feature similar to Snap Inc SNAP’s Snapchat — was initially dismissed by BTIG as a “copycat product,” Greenfield said in his note.

“However, over the past several months, it has become increasingly clear that Instagram Stories is an overwhelming success story for Facebook.”

The feature has 150 million daily active users as of January and has helped propel Instagram north of 400 million daily active users overall, according to BTIG. Ads are beginning to be integrated into Instagram Stories.

Facebook’s initial push of live video was initially viewed by BTIG as a misstep due to concerns about poor quality content dinging user engagement.

The platform has since dropped its focus on live videos, pushed better content on its video tab and added a picture-in-picture feature for video on its mobile app, Greenfield said.

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