Earlier this year, it would have been tough to find an analyst who was bullish on Facebook (FB). Despite the hype leading up to its IPO, the company seemed headed for the dust heap of tech history.
Well, it seems that reports of Facebook’s death have been widely exaggerated, and Mark Zuckerberg has found a way to make huge sums from mobile. So now analysts are flocking to the stock. While this is typical, it isn’t necessarily a sign that the valuation has hit a peak. There could be more room on the upside.
But let’s first take a look at some of the reports. One of the latest actually came out today from Canaccord Genuity analyst Michael Graham, who initiated coverage with a $60 price target. That represents a 22% increase over the stock’s current price — a considerable gain for a company that has already jumped 84% year-to-date.
Yesterday, Citi’s (C) Mark May came out with a positive take. He upgraded his rating from “neutral” to “buy” and raised the price target from $32 to $55. There were several other bullish reports, last week, including one from an analyst at Cowen, who upped the price target from $29 to $53.
No doubt, investors have lots to be optimistic about as Facebook is still in the early stages of monetizing mobile. Keep in mind that just a year ago, that segment wasn’t even making money.
More importantly, just about every market analyst is predicting explosive growth for mobile ads. For example, according to a report from Magna Global, the market will jump from $7 billion in 2012 to $14 billion by 2016.
Video is likely to be another driver for Facebook, especially next year, as Instagram seems likely to start monetization) Based on another report from Magna Global, the market is predicted to climb from $5 billion in 2012 to $12 billion by 2016.
Given Facebook’s scale and treasure trove of data, the company is certainly poised to get an outsized share of the spoils. There should also be a near-term boost as advertisers gear up for the holidays.
But that particular metric doesn’t mean much since Facebook is a momentum play right now, which means investors are willing to tolerate high valuations. And in light of the megatrends of mobile and video, it looks like the growth ramp could easily accelerate, providing more fuel for the stock.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.