Can Messenger Ads Lead To Higher Valuation For Facebook?

by Trefis Team
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Over the years, Facebook (NASDAQ: FB) has amassed huge amounts of demographic and behavioral data about users across the globe. Given Facebook’s data mining capabilities and ever-growing set of user information, the costs of complying with the EU’s General Data Protection Regulation (GDPR) are likely well worth it for the company. While the company’s management may have become relatively conservative in its growth outlook, advertisers will likely continue to find many use cases to leverage Facebook’s ubiquity and data. The net result could be a uptick in the company’s enterprise value per monthly average user (EV/MAU) and ultimately the company’s valuation.

We have a price estimate of $188 per share for the company, which is over 20% higher than its current market price. Our interactive dashboard on Facebook’s Price Estimate provides an overview of our forecasts and estimates. You can modify any of the key drivers to visualize their impact on the company’s valuation.

While the fallout from the Cambridge Analytica scandal led to a consensus downgrade of Facebook’s earning potential, the company continues to pursue alternative avenues of ad delivery. One of the recent initiatives was Facebook attempting to procure user data from large banks. Coupled with the fact that Facebook has been partnering with financial institutions to deliver chat-based user support, the forecasts for margins trending down to 30% from the current 50% levels may end up looking conservative.

The appeal of Facebook’s messenger ads has become evident from the improved return on investment (ROI) for advertisers. As an example, LEGO achieved a 3.4x higher return on ad spend through messenger ads relative to what it would get from ads on its website. Thus, while Facebook’s MAU growth could plateau, we still expect its EV/MAU to grow on the back of newer initiatives such as improved messenger ads. Notably, at Facebook’s scale of over 2 billion MAUs, each dollar improvement in EV/MAU impacts the market cap by over $2 billion.

Do not agree with our forecast? Create your own price forecast for Facebook by changing the base inputs (blue dots) on our interactive dashboard.

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