Facebook Inc. received a buy recommendation from Wedbush Securities Inc. and a target price of $44, its first rating since announcing plans to sell shares in a range of $28 to $35 in an initial public offering.
Facebook, owner of the world’s most popular social- networking company, should benefit from its large, growing user base that will help it attract more spending by advertisers and boost revenue and earnings, Michael Pachter, an analyst at Wedbush in Los Angeles, said today in a note to investors. Mobile advertising could play an especially important part of the growth in advertising, Pachter said.
“More users should drive more usage, which in turn should drive increased advertising revenue share,” wrote Pachter. “Facebook will capture an increasing percentage of spending on offline advertising, while growing share of online advertising as well, as usage continues to increase and advertisers become more comfortable with the cost-effectiveness of online advertising.”
Pachter rated the shares outperform, the equivalent of a buy. The rating, which is unusual prior to a company’s initial public offering, could help persuade investors considering Menlo Park, California-based Facebook, which is valuing itself at as much as $96 billion. Still, the earnings potential may not be realized until the middle of this decade as Chief Executive Officer Mark Zuckerberg focuses on the user experience, Pachter said.
“Investors should be prepared to be exceedingly patient,” Pachter said. “Zuckerberg appears committed to the company’s mission of making the world more open and connected, and appears to us to consider revenue generation an afterthought.”
The stock also should be helped by general investor interest, according to Pachter. Recent transactions on the private markets have put the valuation at as much as $44 a share. That indicates demand for Facebook shares should outstrip supply, Pachter said.
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