CREDIT SUISSE: Facebook is selling more targeted ads than ever amid Russian controversy (FB)

pulse

October 11, 2017 4:32 PM

Facebook's stock could get a boost from overblown concerns about the company's advertisements.

Facebook's main source of revenue, selling advertisements on its platforms, has come under intense scrutiny lately due to alleged election influence exerted by Russia through the company's platform. But, while not great for Facebook's public image, it doesn't seem to have put a dent in the company's business, according to Credit Suisse analyst Stephen Ju.

"It is the rising advertiser propensity to spend a greater portion of budgets on more targeted buys at effective CPMs more than double that of the untargeted buy," Ju said in a recent note to clients.

Ju said that concerns about a slowing ad business at Facebook look to be overblown. The social media giant hasn't added a significant number of ads to its platform, but the price of those ads has gone up as advertisers have opted for more expensive targeted ads, raising the average price per ad.

Increasing the average selling price of its ads is good news for Facebook, in that it doesn't need to increase the number of ads on its platform to see a bump in revenue. Wall Street analysts, like Ju, were concerned Facebook would eventually hit a wall in the number of ads it could place in its feed and therefore see business stall. But the increase in the average selling price seems to have solved those fears.

Facebook is working through issues around its targeted ad system, like the ability for advertisers to use racist terms when buying ads, or the propensity of bad actors to use targeted advertisements to spread false information, in the case of the Russian-bought ads during the 2016 presidential election.

Despite the controversies, it looks as if Facebook's advertising business is still healthy. Ju thinks the increase in the average selling price of Facebook's ads could lead to a $0.11 bump in the company's yearly earnings to $5.73 per share in 2017. The firm raised its price target for Facebook to $235 from $190 in anticipation of its third quarter results, which are due out on November 1.

Facebook is up 47.34% this year.

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