OPA Intelligence Reports

Posted in News on 12/03/2012 By Mark Glaser & Courtney Lowery Cowgill

Facebook rally? Exchange helps

Facebook stock may finally be seeing a little rally, thanks to mobile ads, Facebook Gifts and the so-called Facebook Exchange. The Exchange, Facebook’s crack at real-time bidding, may not be the game-changer some analysts thought it would be when the company first announced it, but it is promising to be stabilizing force for the the social giant’s financial future. In fact, it’s a large reason one of the biggest bears on the company, Bernstein Research, changed its tune. Bernstein analyst Carlos Kirjnern recently upgraded Facebook stock, writing, “We see much more upside than downside over the next 12 months.” What changed his mind? Well mainly it was a renewed faith in Facebook’s ability to monetize its newsfeed on mobile devices. “Facebook probably can increase the number of ad impressions per user per day with limited chance of seeing material deterioration in user experience,” he wrote.

But there’s also the Facebook Exchange, which, as AllThingsD’s Peter Kafka points out, might always be a side project for Facebook, but could help keep its main projects stable. Kirjnern says the exchange ads—which advertisers place based on your search history—will be about 15 percent to 20 percent of Facebook’s overall ad business. Kirjnern says without the Exchange ads the conventional ad business, hurting as more people move to mobile, would slide. In fact, he says conventional ad pricing would drop 5 percent next year and 5 percent in 2014 without the Exchange. Despite all the upgrades the last week of November (most, including Bernstein, pushing a target price to about $33), Facebook stock hovered all week at about $26. Investors are hoping these new strategies, and possibly an external advertising network (reportedly in the works) will keep the rally going.