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“With Apple’s (AAPL) fiscal Q3 report due tomorrow afternoon, after the closing bell, there’s still plenty of time to raise ratings on price targets on the stock, as people have been doing for weeks now,” Tiernan Ray reports for Baron’s.
“First JMP Securities’s Alex Gauna this morning raised his rating on the shares to Outperform from Market Perform, with a $135 price target, arguing Apple is poised to beat sales and gross margin expectations in both the near- and the intermediate-term,” Ray reports. “Also this morning, UBS’s Steven Milunovich this morning reiterates a Buy rating and raises his price target to $115 from $100, writing that his survey of Apple buyers suggests the company’s mix of products was better for this quarter than expected.”
Ray reports, “Milunovich also believes Apple can have a higher-than-expected gross profit margin in fiscal 2015 of perhaps 38.1% versus what he’d previously modeled as 36.6%. In part that’s because of the company’s moving past the impact of revenue deferral for the decision last year to make some iOS software applications, such as iWork, free with Apple devices.”
(Reuters) - Apple Inc has asked suppliers to manufacture between 70 million and 80 million of its two forthcoming large-screen iPhones by the end of the year, its largest initial production run of iPhones, the Wall Street Journal reported, citing people familiar with the matter.
Its forecast for the iPhones with 4.7-inch (11.9-cm) and 5.5-inch (14-cm) displays is much larger than the initial order last year of between 50 million and 60 million for iPhone 5S and 5C models, the people told the Journal.
Foxconn and Pegatron Corp plan to start mass producing the 4.7-inch iPhone model next month, and Hon Hai Precision Industry Co Ltd, whose parent is Foxconn, will begin making the 5.5-inch version exclusively in September, the people said.
Both iPhone 6 screens will be larger than the 4.0-inch (10.2-cm) panels on Apple's existing iPhone 5S and 5C models.
The new phone models are also expected to feature metal cases similar to the iPhone 5S and likely come in multiple colors, the people said.
Both iPhone 6 screens are expected to use in-cell touch panel technology, built into the screen and allowing for thinner construction than with standard touch panel films, that was introduced with the iPhone 5, sources told Reuters in March.
There could be difficulties with in-cell production technology for the larger 5.5-inch size, one of the sources told Reuters then.
To factor in the possibility of a higher failure rate for displays, Apple has asked component makers to be prepared to make up to 120 million iPhones, the people told the Journal on Monday.
July 22 (Bloomberg) –- Ever wish the apps on your phone would seamlessly link with your car? You don't have to wait much longer. Both Apple and Google have announced programs to integrate their mobile operating systems into your dashboard. Apple Carplay and Google Android Auto are scheduled to roll out later this year. Bloomberg Businessweek's Sam Grobart takes a look at what that means for the consumer. Video by: Alyssa Zahler, Ryo Ikegami. (Source:Bloomberg)
Netflix (NASDAQ:NFLX): Q2 EPS of $1.15 in-line.
Revenue of $1.34B (+25.2% Y/Y) in-line.
Shares +2.5%.
Summary
Apple will report earnings on Tuesday afternoon.
Today, I'll preview the report with my predictions.
Expectations are high after last quarter's beat and recent rally.
Tuesday afternoon, all eyes will be on Apple (NASDAQ:AAPL) as it reports fiscal third-quarter results. This June ending quarter always seems to be a transitional one for the company, as investors and consumers eagerly anticipate the next series of amazing products. This will also be the first quarterly report for Apple after the stock split, which will provide some additional fun. Today, I'll provide my quarterly Apple earnings preview, not only looking at the quarter to be reported, but the one to come as well. Expectations will be high this time around, especially after last quarter's huge beat, and the run in shares over the last few months.
Looking at past results:
Before I get into the quarter to be reported, it's always good to look back at past results. The table below shows fiscal Q3 in the last two years, with last year's Q3 period in yellow. I also included this fiscal year's Q2, so you can get an idea of how things are sequentially.
Back in April, here's what Apple guided to for fiscal Q3:
Revenues between $36 billion and $38 billion.
Gross margin between 37% and 38%.
Operating expenses between $4.4 billion and $4.5 billion.
Other income of $200 million.
Tax rate of 26.1%.
When I ran Apple's guidance back in April, using the Q2 diluted share count, I got an EPS range of $7.58 to $8.60. Split adjusted, that would be about $1.08 to $1.23. As long as Apple comes within that range or above it, we will see year-over-year EPS growth for Q3. Now, let's get into the product lines.
Product overview - the iPhone:
Obviously, the iPhone has the largest impact on Apple's results. When I get to my predictions later, I have the iPhone representing around 54% of the quarter's revenues. Apple is expected to show decent year-over-year growth for the phone, thanks to the addition of new carriers, like China Mobile (NYSE:CHL). Right now, the analyst average forecast is for approximately 35.88 million iPhones, almost 15% year-over-year growth.
Expectations are fairly high after last quarter's iPhone blowout, where Apple showed nearly 17% unit growth over the prior-year period. Don't be surprised though if average selling prices come down both sequentially and over the prior-year period. Selling prices usually decline as we get closer to the launch of the new phone, and last year's period did not have the cheaper priced 5c model. I'm a little more positive than the street average, but I'm not going too crazy. I think Apple can do more than 36 million.
Product overview - the iPad:
Back in April, the iPad was the clear disappointment, with sales falling well short of estimates due to inventory fluctuations. Apple CEO Tim Cook stated that demand was not a problem, but I'm not completely sold. Currently, analysts are looking for about 14.43 million iPads to be sold, or about a 1.3% decline over last year's period. I'm not as bullish, but I still think Apple will come in over 14 million. I expect average selling prices to be up over the prior-year period, like we saw in fiscal Q2, but I think that they will be down sequentially. I wouldn't be surprised if the iPad surprises in a big way this quarter (one way or another), but even a big upside surprise could be lost in the shuffle if the iPhone disappoints.
Product overview - the Mac, iPod, and other revenues:
PC sales have started to improve a bit, and I think that will certainly help Apple thanks to its strong ecosystem. Current forecasts call for sales of about 3.91 million units, as compared to 3.75 million in the year ago period. After some of the strong PC results we've seen, I'm going to go a little higher and say that Apple sold 4 million.
As for the iPod, it's almost time to say goodbye to this product line. I'm calling for a 54% drop in unit sales, and for iPod revenues to represent less than 1% of the quarter's total. As for Apple's "other revenues", things like accessories and iTunes, I'm calling for $5.65 billion, up from $5.17 billion in the year-ago period.
My predictions and Q3 estimates:
Every quarter I am asked for my own set of predictions for the quarter, so here's what I will guess:
4.00 million Macs, ASP of $1,275.
2.10 million iPods, ASP of $155.
36.20 million iPhones, ASP of $570.
14.25 million iPads, ASP of $450.
Total revenues of $38.122 billion.
Gross margins of 37.70%.
EPS of $1.25.
I'm a little bit ahead of the upper end of Apple's range, but remember, the bar is a lot higher this time. The current analyst average is for $37.93 billion, which is the upper end of Apple's range. After last quarter's beat, analysts are expecting a strong quarter, so that is a slight risk here. Apple could come in at $37.90 billion for the quarter, just about the top end of its guidance range, and that number would be seen as a miss. I'm towards the upper end of the gross margin range from Apple. Remember, it was the strong iPhone number that led gross margins to be really strong last quarter. A percentage point (100 basis points) of gross margins could basically swing EPS by a nickel.
When it comes to the bottom line, I'm currently two cents ahead of the analyst average for $1.23. One of the most important items to the bottom line will be Apple's buyback. The company had about $44 billion left on the buyback at the end of the prior quarter, when including the raise. That buyback is expected to be completed by the end of calendar 2015. Apple also split its shares 7 for 1 during the quarter. With Apple taking out more debt in this quarter, I'd look for the buyback to hopefully be around $10 billion or so in fiscal Q3.
Looking ahead to fiscal Q4:
Perhaps the most important part of Apple's report will be the guidance for fiscal Q4. With the company expected to launch its new iPhone in September, investors and analysts will try to take apart Apple's guidance for any clues on a launch. Will it be one phone or two? Will there be something else coming? Will one launch come in August and another in September? There are a lot of questions one could ask, and we hope to get some clues this week.
With the launch of a larger screen phone that should be more in demand, plus things like the China Mobile deal still helping, analysts are expecting a sequential rise in revenues and earnings for fiscal Q4. Currently, analysts are looking for $40.44 billion in revenues and $1.34 in EPS, compared to $37.47 billion and a split-adjusted $1.18 in the year ago period. It would not surprise me if the lower end of the guidance range starts with a "3", especially in a launch quarter. We may get a slightly larger range this time around just due to a little extra unpredictability. So I would be looking for a $2-$3 billion range somewhere in the $37-$43 billion range. If I had to guess, I'd say maybe $38 billion to $41 billion.
Final thoughts:
Apple will report earnings this week, and expectations will be high after last quarter's blowout. Analysts are at the high end of Apple's revenue range, with the iPhone expected to show solid growth. EPS are expected to bounce nicely, with some help from Apple's substantial buyback. Investors may be expecting even more out of the company, with shares up $20 since the last report. How will Apple do? We'll find out soon enough, and I'll be back later this week to analyze the results.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Investors are always reminded that before making any investment, you should do your own proper due diligence on any name directly or indirectly mentioned in this article. Investors should also consider seeking advice from a broker or financial adviser before making any investment decisions. Any material in this article should be considered general information, and not relied on as a formal investment recommendation.
Facebook (NASDAQ:FB) will report 2Q14 results on Wednesday (July 23) after market close. Investors can access the online webcast through FB's investor relation site (link). Consensus expects non-GAAP EPS of $0.32 and revenue of $2.79b for the quarter.
Positive on the ad revenue trend
Among the US large cap internet names, I am more positive on FB as the company has demonstrated solid top and bottom line growth over the past several quarters with accelerating growth in ads and total revenue, and triple digit mobile ad revenue growth. Most importantly, engagement metrics expanded 300bps over the past year, in contrast to Twitter's (NYSE:TWTR) engagement metric, which declined 8% y/y. The overall pricing trend and usage seems to be strong judging by the recent quarterly filings and I expect Q2 to demonstrate another round of solid growth in all the key operating metrics.
Mobile revenue accelerating on the back of rising engagement
I expect mobile revenue to accelerate this quarter on the back of rising mobile engagement. Last Q, mobile revenue accounted for 59% of total ad revenue and I expect the proportion to increase to ~65%, on par with mobile engagement.
Video ad showing initial signs of life
Based on my check, FB seems to have been aggressive in pushing mobile video ads. While the coverage is still small (I observe ~5-10%) as FB try to mitigate user experience, I am still positive on the product's long-term potential. However, investors should not expect to see meaningful impact of the video ads in the upcoming Q given the early stage of the product launch.
Premarket is putting us at almost 70. We might open at 70. :)
Facebook tests Buy button, gives celebrities their own app
01:08 AM ET · FB
In a move that could boost the company's e-commerce monetization in time, Facebook (NASDAQ:FB) is giving merchants the option to embed a "Buy" button within news feed ads and Page posts.
Clicking on the button allows users to buy a promoted item without leaving Facebook's site, and to save the payment info they provide for future purchases. The feature is being tested out with a handful of U.S. SMBs. Facebook isn't charging a transaction fee for now, but is open to doing so down the line.
While Facebook does plenty of business with e-commerce advertisers - Nanigans' Q2 numbers drive this home - users have until now had to leave Facebook to finish a transaction (virtual goods purchases excepted). If on-site purchasing improves conversion rates, Facebook can benefit either directly (by charging a fee) or indirectly (by charging higher ad prices).
Separately, Facebook has rolled out Mentions, a new app meant to help verified public figures interact better with their Facebook fans.
Facebook and Twitter have been battling for celebrity support for years. Each platform has its strengths: Twitter has been better at fostering conversations with fans, and Facebook has been better at getting out celebrity messages that require more than 140 characters.
Previous: Facebook launches payments auto-fill tool to improve ad data
Summary
Facebook will be testing the addition of a "buy" button on advertisements.
Coupling this feature with its FAN could generate incredible revenue growth.
Facebook has a superior platform for advertisers and could turn itself into a monopoly.
Thursday afternoon, news broke about Facebook (NASDAQ:FB) testing a "buy" button, which will allow users to make purchases through advertisements or other posts directly from their newsfeeds. Users will be able to store their credit card information on Facebook, so the entire purchase flow will stay within the site. Initially, Facebook will be testing the alteration with small to mid-sized businesses and will not charge advertisers for it. However, when asked if they would charge more for this feature, they did not rule that out.
Have a great weekend everybody. Next week will be an exciting week.
Big earnings coming. FB will have no problem beating the estimates across the board.
RSI is at 56.23
We have a lot if room left for a few runs into earning.
Looks like we will close above 68 for sure.
Earnings announcement* for AAPL: Jul 22, 2014
Apple Inc. is expected* to report earnings on 07/22/2014 after market close. The report will be for the fiscal Quarter ending Jun 2014. According to Zacks Investment Research, based on 20 analysts' forecasts, the consensus EPS forecast for the quarter is $1.22. The reported EPS for the same quarter last year was $1.07.
Read more: http://www.nasdaq.com/earnings/report/aapl#ixzz37qB47gSQ
Trading at 68 on Monday shouldn't be a problem.
Earnings announcement* for FB: Jul 23, 2014
Facebook, Inc. is expected* to report earnings on 07/23/2014 after market close. The report will be for the fiscal Quarter ending Jun 2014. According to Zacks Investment Research, based on 14 analysts' forecasts, the consensus EPS forecast for the quarter is $0.26. The reported EPS for the same quarter last year was $0.13.
Read more: http://www.nasdaq.com/earnings/report/fb#ixzz37qAaOkun
That little pull back from yesterday was what we need for this to go even higher going into earnings next week.
That little pull back from yesterday was what we need for this to go even higher going into earnings next week.
The retrace is healthy for any stock. Now we have room for more runs next week. :)
The retrace is healthy for any stock. Now we have room for more runs next week. :)
Summary
More than 100 industry-specific enterprise apps will be offered on iOS, covering an array of IBM cloud services optimized for iOS; including data and security analysis.
Apple will benefit from IBM's strong enterprise relationships and strong sales force worldwide.
Pressure on BlackBerry and Microsoft will increase as IBM and Apple team up to expand market share in the enterprise sector.
IBM Corp. (NYSE:IBM) and Apple (NASDAQ:AAPL) will team up to provide stronger business apps on iOS devices, and in turn, Big Blue will sell these stocked iPhones and iPads to the business community. IBM has a strong presence in the enterprise market, which will benefit Apple greatly by strengthening its market share in the business community.
Apple CEO, Tim Cook and IBM CEO, Virginia Rometty appeared on CNBC to discuss the deal. Tim Cook realized that Apple still needed to do something big to continue its market share expansion in the enterprise market:
"The reality is, that the penetration of these businesses and in commercial in general for mobility is still low. So where we have very good market share the penetration suggests there's a huge opportunity here."
The partnership should alter how businesses and employees work using the iPhone and iPad. The new enterprise app-loaded iPhones and iPads will be a catalyst for companies looking to achieve higher levels of dependable data security and increased levels of overall efficiency in hopes of delivering increases to the bottom line.
Some of the key specifics announced include the new class of more than 100 industry-specific business solutions, including apps developed exclusively for iOS devices. The new apps will cover an array of IBM cloud services optimized for iOS, including device management, security, analytics and mobile integration. The new IT support AppleCare service and support offering will meet the demands of the business community. Further, new packaged offerings from IBM for device activation, supply and management will boost Apple as efficiency and dependability increase.
Who Will Benefit More From The Deal?
Richard Doherty, director of the Envisioneering Group, a research consulting firm, was one of many analysts who believe the deal will benefit both Apple and IBM:
"They really do complement each other. This seems to be one of these rare win-win-win things. I just see less indecision and more satisfaction and maybe people at work getting to enjoy an iPad on the company's dime instead of them having to go out and buy it. People do equate trust and security with IBM more than any other company,"
However, some believe that Apple has already delivered in enterprise market and that the deal is not very significant. Analyst Gene Munster noted that the company has already penetrated most large businesses, both in the U.S. and abroad.
"We do not expect the IBM partnership to have a meaningful impact on Apple's financials overall primarily based on our belief that large corporations are already utilizing iPhones. We expect IBM to eventually offer similar solutions on Android over time, thus we believe Apple's innovation on the OS and hardware remain the most critical factors in device sales."
(Source: Good Technology-Net Activation by Platform)
Apple does dominate the enterprise area, with a reported 72% of all activations by platform being iOS products. Further, Apple's iOS platform made up 95% of total app activations.
Apple's strength in the ultra-competitive consumer market has been the cornerstone of the company's success. Though Google's (NASDAQ:GOOG) (NASDAQ:GOOGL) Android has a significant lead over Apple's iOS in market share, with over 70% in the consumer market, the inverse is true for the less volatile enterprise sector. Apple's deal with IBM will increase enterprise market share, taking some pressure off the consumer market. The big score for Apple here is not expanding among U.S. corporations, but looking to international markets. The iPhone and iPad accounted for 82% and 73% of devices deployed at U.S. corporations respectively.
However, the international picture is going to be what IBM helps Apple expand into at a much faster rate. The iPhone and iPad only account for 36% and 39% of the global enterprise sector, respectively. IBM will act as a catalyst for Apple in the global business industry. Big Blue's team of over 100,000 domain and industry consultants and developers will allow for strong international demand among those companies that have been doing business with IBM for decades, but have yet to switch to signing the long-term contracts that come in the enterprise market. Apple can also leverage the fact that IBM has such a strong foothold in the enterprise market that Apple itself will not have to allocate assets to build a large enterprise sales team, lowering costs without giving up selling potential.
Investors should enjoy both a surge in iPhone and iPad sales, and a long-term stabilization as companies sign long-term agreements to bring the newly business-oriented Apple products on board to executives and employees worldwide.
A strong point of this partnership will be the focus on protecting the increasingly vulnerable data security that has been a point of contention for all companies globally. The work that has been done by both Apple and IBM to deal with security will now come together as two of the largest tech companies complement and work with each other to provide solutions for both big corporations and small businesses. IBM's MobileFirst platform for iOS has focused on critical security functions, while at the same time, Apple has been implementing more security features to the iOS platform. One of the more well-known is the physical security feature of the digital fingerprint technology that will be used not only to log-in to one's phone, but will be a part of how bills or even invoices are paid in the future. The combination in an area like this is just one example of why this partnership will prove to be successful.
Pressure on Competitors
The partnership between the two tech giants is going to cause downward pressure on several companies. BlackBerry (NASDAQ:BBRY), which was once the leader of smartphones for the business community, has been struggling to gain back market share. However, this deal will mean competition by Apple, through IBM, and will really hurt chances for BlackBerry to come back in the handset industry. Ross Gerber, CEO of wealth management firm Gerber Kawasaki, described the partnerships impact on BlackBerry,
"Apple just took a sword and just stabbed it right in the heart of BlackBerry and said, 'you're done.'"
At the end of May, BlackBerry CEO, John Chen believed that the chances of saving the handset division were 80/20. IBM and Apple have just made the odds almost impossible, but Chen did discuss that it could ditch the handset division if it came to that:
"I will be able to create a lot of value for our shareholder even without handset business, but I can create more with the handset business."
BlackBerry shares dropped initially dropped 4% after the partnership was announced, though the stock rebounded as more details came out.
Another company that will find the partnership between IBM and Apple significant is another tech giant, Microsoft (NASDAQ:MSFT). The company announced a strategy around increasing its cloud and mobile services to enterprise clients as part of its first stage of CEO's Satya Nadella's transformation away from selling software.
That both Apple and IBM are up significantly after announcing the deal points the fact that investors of both companies see a positive outlook on the partnership. Apple will benefit from IBM's strong sales force with its enterprise partners. Further, Apple will become more credible in the business community with IBM developing and selling the enterprise-specific Apple products. Investors should look as this deal as a catalyst for both IBM and Apple, as this will increase long-term sales and market share worldwide. Apple is the clear winner here, but more importantly, investors see yet another catalyst for improving sales orchestrated by Tim Cook. Cook has proven time and again, i.e. through the China Mobile (NYSE:CHL) deal, that his particular skill set seems to be exactly what Apple has needed since he took over as CEO.
Disclosure: The author is long AAPL. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.
We might head back up toward the end if the day. AAPL have a bright future ahead of them.
The chart is showing a very bearish pattern confirmed. We might see it retrace to around 92.50 before moving back up. This doesn't really matter for long term investors. Hold on tight because it might get a little bumpy tomorrow. IMHO
AH trading looks pretty fun
After hour is bouncing up and down and up and down like crazy. It will be very interesting to see where AAPL will open tomorrow.
Apple reaches $450M e-book deal (pending appeal); Citi starts coverage
04:03 PM ET · AAPL
Should an appeals court fail to rule in its favor, Apple (AAPL -0.5%) has agreed to pay $450M to settle its long-running e-book price-fixing probe, with $400M going to consumers. A successful appeal could lower the sum to $70M ($50M for consumers), or clear Apple of any payments.
Five publishers have already agreed to pay a combined $166M to settle price-fixing allegations. Today's disclosure comes after state attorneys general and consumers filed an $840M suit against Apple in February over its e-book deals, and an injunction was placed last September restricting the types of e-book deals Apple can make.
Apple's settlement was originally announced in June, but terms were confidential until now. E-books make up only a small fraction of Apple's iTunes/Software/Services revenue (totaled $4.6B in FQ2).
Separately, Citi's Jim Suva has launched coverage with a Buy and $110 PT. He thinks Street estimates undervalue the impact carrier upgrade/installment plans are having on smartphone purchases, and forecasts FY15 EPS of $7.30 (above a $6.96 consensus). Canaccord has also been positive on the impact of new phone purchase plans.
AAPL been going up a little too long. It needs to cool down before next week or else it won't have room to rise higher. RSI is was too close to 70. Give it a day or so to cool down. AAPL will be at $100 by end of year.
Taking a breather is always good for any stock. Go down a little and move up stronger after the gaps are filled. Going long with AAPL but need to cool down a little before moving back up next week.
Few more days till earnings. Let's see this run before than.
It might close green later on today. Let's go FB!
Going to bounce from here
Everything about FB is looking good right now. Excellent earnings coming out soon. Charts are looking very bullish.
We will probably be in the 70's by mid week. :)
Summary
UBS reiterated its $90 Price Target for Facebook. UBS projects Instagram and Premium Video Ads will each deliver $1 billion sales by 2017 or 2018.
App Links is a strong catalyst for Facebook’s mobile-centric focus.
App Links will weaken Google’s browser-based mobile search advertising.
UBS reiterated its Buy rating and $90 price target for Facebook (FB). UBS also raised its estimate of Facebook's 2015 to 2018 revenue growth rate from 17% to 23%. The UBS analysts justified their increased expectations by pointing out that Facebook has strong long-term growth catalysts in Instagram, WhatsApp, and Premium Video Ads.
UBS analysts Vishal J. Patel and Eric J. Sheridan are forecasting a 24% increase in Facebook's EBITDA from 2015 to 2018. They estimate that Instagram and Premium Video Advertising will each generate $1 billion in sales by 2017 or 2018.
The UBS analysts also believe that WhatsApp's massive number of users and cross-platform pervasiveness will further improve Facebook's long-term growth.
China And Asia Are Rich Markets for Instagram Ads
I agree with the logic behind UBS' bullish long-term outlook for Facebook. A $1 billion sales estimate by 2017 for Instagram is highly possible. Facebook is already planning to expand Instagram ads to other countries this year.
Facebook and its core apps are banned in China. However, Instagram is allowed in China and the photo-sharing app is a big hit with mainland Chinese mobile users.
The new office of Facebook in China will likely leverage Instagram's popularity to attract local Chinese advertisers. China has 700 million smartphone users. Instagram advertising in China is a potential gold mine because Google (GOOG, GOOGL) has no competing app available to offer to local Chinese advertisers.
App Links Strengthens Instagram and Other Mobile Apps
Facebook's App Links initiative fortifies the company's lead in mobile advertising. The open-source App Links was only unveiled last April 30 but it can help realize the $90 price target of UBS. Developers can quickly enable deep linking between mobile and web-based apps through Facebook's App Links.
App Links also allows mobile apps to deep link between each other like websites do on the internet. It is a cross-platform tool that allows deep linking between apps among iOS, Android, BlackBerry (BBRY), or Windows Phone devices.
Source: Facebook
Facebook has no search engine to match what Google has right now. However, the big shift towards mobile computing is to the advantage of Facebook. Native advertising is the focus of Facebook's new Audience Network platform for third-party advertisers and app developers.
Deep linking between mobile/web apps is a big advantage for developers and advertisers to share data. In-app purchase-dependent games and advertising-supported apps might benefit from deep linking with each other and share promotional offers.
Likewise, targeted advertising also benefits advertisers who have the same target audience but have different products to sell.
Facebook announced recently that more than 1 billion app links were enabled since App Links' launch. Hundreds of companies like Hulu, Vimeo, Spotify, and Pinterest use App Links.
(click to enlarge)
Source: Facebook
App Links allows mobile users to no longer access the mobile internet browser when clicking on a picture or link inside an app. Google's mobile search advertising will likely suffer from Facebook's App Links.
FB investors should appreciate that App links are in line with Flurry's findings - Android and iOS devices users spend most of their time on Facebook and games, rather than surfing the net with browsers. Android's native browser only received 4% share while Facebook's mobile app received 18% of mobile users' time.
LiveRail Can Help Towards Hitting $1 Billion Sales
Facebook's recent acquisition of LiveRail is also one more reason why I believe in the $90 price target of UBS analysts. LiveRail can help deliver $1 billion in sales for Facebook's video advertising unit by 2017 or 2018.
According to comScore, LiveRail is the third-largest video ad seller to U.S. customers. LiveRail's video ads reached 37% of the U.S. audience, while Google Sites only reached 34.1%. Facebook's global audience of 1.5 advertising eyeballs may help LiveRail attract more clients than BrightRoll and Specific Media.
Facebook may have paid around $500 million to acquire LiveRail. Techcrunch said LiveRail earned $60 million in gross revenue last year. However, the Techcrunch article did say that LiveRail is already on track to hit $200 million in gross revenue by the end of 2014.
Based on this year's revenue, Facebook bought LiveRail on the cheap - just 2.5x Price/Sales (way below than the 40x+++ P/S that Facebook paid for WhatsApp).
LiveRail's client list already includes more than 200 companies. Facebook investors should appreciate that LiveRail also delivers 5 billion video ads every month. Facebook gets access to LiveRail's programmatic ad-serving technology and real-time bidding platform (RTB).
LiveRail's success is largely due to its industry-leading real-time bidding infrastructure. Facebook now owns an RTB system that can process billions of daily transaction decisions for video advertisers. LiveRail's technology can analyze audience data and complex campaign/yield objectives to help advertisers come up with optimal decisions.
Facebook's original video ads initiative is notorious for being expensive. LiveRail's RTB lets prospective clients get optimal pricing for their video ads placement.
Furthermore, LiveRail gives Facebook a massive custom-built data center that can serve video ads to billions of multi-devices in real time with minimum latency.
Conclusion
The long-term price target of $90 for Facebook by UBS is believable. App Links and LiveRail can help realize the $1 billion revenue 2017/2018 targets (made by the UBS Analysts) for Instagram and Premium Video Ads. Thirty-one other analysts also rates Facebook as a Buy.
My favorite market peers-comparative valuation tool, Alpha Omega Mathematica gives Facebook a Buy recommendation. The high-math valuation engine of Alpha Omega Mathematica agrees with the bullish Facebook sentiments of highly paid UBS analysts.
Source: getaom.com
Disclosure: The author is long FB. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.
Facebook's ad display platform is key to growth according to Brian Novak
Facebook Inc. (FB) is in a strong position to garner revenue from the ads business, and its Q2 results should demonstrate that ability, or at least that's the opinion of the company held by Susquehanna analyst Brian Nowak. According to a new report from the research firm, Facebook is likely to show some upside on guidance when it releases its results for the second quarter of 2014.
According to the report Facebook, along with much of the internet sector, is due to show strong results from the period. The analyst is especially bullish on Mark Zuckerberg's company and believes that its prospects, based on a couple of unique attributes, are good for the period.
Mobile log in is key Facebook asset
According to the Susquehanna report, Facebook has a key advantage over many of its competitors. Its users tend to be logged on to the social network on their smartphones at all times. That gives the company an incredible array of information it can use to better target ads towards its users, and increase CPM, or cost per impression.
That number is still low at Facebook, but Mr. Novak expects to see improvement in the second quarter. The future of the key advertising measure is set to rely on Facebook's ability to track a user's entire mobile experience through their Facebook log in. The company's mobile display ads business is still fledging, but that persistent log in may be enough to push it ahead of the competition.
According to Mr. Novak, "In fact, we believe mobile advertising is ramping even faster recently because Facebook mobile is the only mobile display platform offering scale at this level (~1bn monthly mobile users). And because Facebook users are logged in, their platform also allows for better mobile targeting than other offerings."
Facebook earnings incoming
Facebook is set to release its financials for the three months through June on July 23. Mr. Novak is expecting the company to show earnings of 34 cents per share for the quarter, ahead of consensus projections of 32 cents EPS. Revenue is, according to the report, expected to come in at $2.67 billion. The consensus estimate for the same is $2.56 billion.
The analyst is bullish on the prospects of Mark Zuckerberg's company, and put a price target of $76 per share on the company ahead of its earnings release. The last report that Susquehanna released on Facebook set a price target of $72. Mr. Novak is clearly a fan of the direction in which Facebook is heading.
On today's market, stock in the company traded up strongly. At time of writing, the company's shares had risen by close to 2.5% to hit $66.45. So far this year, the firm value has increased by more than 20%, beating an S&P 500 that gained 6% since January 1. Whether or not Facebook can keep that kind of performance up is difficult to predict, but the Susquehanna analyst seems confident in his predictions of green days ahead in Menlo Park.
Looks like gap needs to be fill before flying up.
I agree! Next week will be exciting.
Here comes the next run!
Pre-market is GREEN
Today's chart looks like a reversal is coming tomorrow.
Enjoying the ride all the way back to 70's. :)