Friday, October 2, 2015

Choose Facebook $FB Over LinkedIn $LNKD, Twitter $TWTR

  • Wedbush on Thursday assumed coverage of Facebook Inc FB , LinkedIn Corp LNKD  and Twitter Inc TWTR .
  • The firm gave Facebook an Outperform rating, and Twitter and LinkedIn, a Neutral rating.
  • Shares of Facebook rose 1.17 percent on Thursday, while LinkedIn fell 0.43 percent, and Twitter fell 8.43 percent.
Wedbush set the following 12-month price targets: Facebook at $115.00, LinkedIn at $200.00, Twitter at $30.00.

Despite “phenomenal” growth that Facebook experienced over the past decade, Wedbush still expects the company to continue to expand its active user base over the decade to come. In addition, “Facebook is at the leading edge of a shifting communications environment (…) The transition to immersive 3D video creates the potential for a host of new applications, including education, gaming, and service offerings not currently offered by Facebook.”

Two more elements to take into account are (1) Facebook’s consistent success in increasing user engagement, the frequency in the delivery of ads, and ad rates per view; and (2) its impressive EBITDA contribution margin on revenue growth of 80 percent.

Regarding LinkedIn, Pachter does recognize its status as “the preferred online destination for job seekers and recruiters” and acknowledges that the company does seek to capitalize on this sturdy and active user base by offering several sorts of products – like marketing and education solutions.

However, LinkedIn’s “progress in marketing and educational solutions will likely be driven by engagement of its users” and Wedbush is not optimistic about LinkedIn’s ability to drive engagement without compelling content. In addition, they note shares are fairly valued.

The firm believes Twitter has a solid user base, “a first mover advantage that will be nearly impossible to overcome, and a flawed business model.” While they do believe that Twitter can battle Facebook in reach, it would need to change its strategy to successfully rival it.
Until the firm sees evidence that management has implemented a new strategy that can drive user and engagement growth, they would rather remain on the sidelines – at least until a new CEO is officially selected.

Bullish analysts have price targets between $105 - $125 on FB.

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