Why You Should Own Facebook Right Now
NEW YORK ( TheStreet) -- Facebook's(FB) is receiving an inordinate amount of attention from the sell side Wednesday with the quiet period for the underwriters of the social networking giant's initial public offering now over.
Overall, the reviews mixed and the stock is down 1.2% to $32.72 in recent trades, still well below its IPO pricing at $38.
Wednesday's dip is a buying opportunity to Piper Jaffray analyst Gene Munster though as he's initiating coverage of the stock with an overweight rating and a $41 price target, calling the company "one of the five most important companies in the Internet space." Munster's thesis boils down to a belief that the opportunities that lie ahead for Facebook are unprecedented as it develops into a true global company and establishes a robust mobile revenue stream.
Right now Facebook has more than 900 million monthly unique users, only behind Google's(GOOG) 1 billion plus in terms of Internet services. As the company matures domestically, emerging markets will become even more important, Munster believes.
"Over the next three years, we expect the trend of users to gradually skew toward emerging markets," he wrote, estimating that emerging markets including Asia will comprise 60% of Facebook's user base by 2014.
Even though average time spent on the site may have peaked, according to third-party statistics, the usage is still impressive. ComScore estimates the average U.S.-based Facebook user spends around six to seven hours a month on the site, up 2% year-over-year. In Europe, comScore believes the number is closer to five to six hours per month, and far less in emerging markets.
The number of daily active users (DAUs) continues to grow, which bodes well for the company. According to Facebook's data, 57% of all monthly users accessed the site daily. Seventy percent of U.S. and Canadian users accessed the site daily, while approximately 50% of the rest of the world accessed Facebook daily. "We believe that the US/Canadian usage trends are leading indicators of where things will go for emerging markets," Munster said.
Mobile monetization is a huge impediment towards revenue growth for Facebook, with Facebook acknowledging the risk in its prospectus.
Munster noted that only 1% of total ad spend in the U.S. is on mobile advertising despite users increasingly spending more time on smartphones and tablets. Ad spend is predicted to catch up to time spent on mobile within five years, which will help average revenue per user (ARPU) for Facebook. Facebook's advertising ARPU was $3.73 in 2011, Munster said.
More than half (51%) of Facebook's users access the social network through a mobile device, and that's expected to increase over the next three years, so Facebook will have to continue to think of new ways to drive revenue from its mobile initiatives. Sponsored stories is one way Facebook is currently monetizing mobile, though it has said previously it does not generate any meaningful revenue from mobile.