Facebook 'Bear' Gets Optimistic; 'More Upside Than Downside,' Bernstein Says - Wall Street Journal (blog)

By Steven Russolillo

One of Facebook's biggest bears is adding fuel to the stock's recent rally.

Bernstein Research, the most bearish firm on Facebook after the social network went public in May, upgraded the social network this morning to outperform from market perform.  The firm said Wall Street may be underestimating Facebook's revenue growth potential over the next 12 to 24 months.

"At this point and for the near-to-medium term, [Facebook's] revenue growth trajectory will be the main driver of Facebook's stock performance," says Carlos Kirjner, senior analyst at Bernstein Research.

He also boosted his price target to $33 from $23, saying the social network may be able to earn more from its mobile advertisements and new businesses, such as Facebook Gifts.

UPDATE: Shares rose 7.4% to $25.75 shortly after 10:30 a.m. Eastern Time. The stock finished last week at its highest level since late July. Through Friday's close, the stock is up 25% from Nov. 9.

Facebook also got a second upgrade this morning from brokerage firm BTIG. Dow Jones' Drew Fitzgerald has the details:

BTIG still calls Facebook's decision to clutter phone screens with more ads "a serious user experience mistake," but that doesn't preclude shares from getting a big near-term bump from ad revenue flooding its top line. Firm now sees fourth-quarter results topping expectations based on evidence of surging ad loads over past month. BTIG upgrades social network's shares to neutral. BTIG in October dropped Facebook to sell, citing a strategy it still considers risking long-term growth.

Despite today's rally, the stock still remains a far cry from its $38 IPO price in May.

Kirjner at Bernstein initiated coverage on June 4 with an underperform rating and a $25 price target. At that time, he said the company faced a "material risk" because investors would question the company's ability to meet its 2013 forecasts. He also had his doubts that "social advertising."

On July 31, Kirjner turned slightly less bearish by lifting his rating to market perform, although he also lowered his price target to $23. Back then he said even though Facebook's unique growth prospects merited a small premium, they didn't offer enough to make the stock a screaming back.

Now, Kirjner is on board.

"Further monetization of (mobile) Newsfeed inventory will be the main driver of growth," he says. "We believe that for the next 18 to 24 months Facebook probably can increase the number of ad impressions per user per day with limited chance of seeing material deterioration in user experience."

While Kirjner has become more optimistic on Facebook's short- and long-term prospects, he acknowledges that the stock still faces plenty of risks.

"Facebook remains a risky investment, dependent on the long-term and yet-unproven success of social advertising, the realization of the platform opportunity, and the potential to develop new businesses," he says.

But for now, there appears to be more to like than dislike about the stock at current levels. "With the stock trading at $24, we see much more upside than downside over the next 12 months, given that our conservative assumptions on revenue trajectory imply a revenue beat, and given the upside potential from Facebook's distinctive assets."

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