Facebook outpaced a broader climb in U.S. markets Thursday, with two industry analysts upgrading their rankings on the company, citing potentially fat revenue streams materializing later year.
THE SPARK: Analysts say concerns about advertisers and declining interest from younger users are being overplayed. They see several catalysts that would push the stock higher over the next few months.
THE BIG PICTURE: The Menlo Park, Calif., company is the world's biggest online social network with more than 1 billion people using its website every month. It also has said it averaged 665 million active users each day in March.
The company's stock price has fallen about 16 percent in May, as of Wednesday's close. Shares have been under increased pressure since a campaign was launched last week to get Facebook to end hate speech on its website. The company lost several advertisers, at least temporarily.
THE ANALYSIS: Jefferies analyst Brian Pitz raised his rating on the stock to "buy" from "hold" and increased his price target by a dollar to $32.
The analyst said in a Thursday research note that a recent decline in share price creates a buying opportunity for investors, particularly before the company launches video ads. Pitz cited a report by The Financial Times saying that Facebook will unveil video ads in July in an attempt to tap into the TV advertising market. He said the video ad business could develop quickly like the company's mobile ad business, which is on track to deliver $1.9 billion in revenue this year.
He also said he thinks the financial impact from the campaign will be muted, and many of the advertisers that left can easily return.
BMO Capital Markets analyst Daniel Salmon also upgraded the stock to "outperform" from "market perform." He said in a separate note advertiser sentiment about Facebook has remained positive throughout this year. He also said investors have grown too negative about Facebook usage concerns.
Salmon noted that many young users who are visiting the site less have moved to the Facebook-owned photo sharing network Instagram.
"The continued independence of Instagram underpins what we see as an evolving company strategy focused on maintaining a 'portfolio of social networks,'" Salmon wrote.
SHARE ACTION: Up 5.5 percent, or $1.28, to $24.60 Thursday afternoon, while broader trading indexes edged up less than 1 percent. Despite Thursday's gain, the stock is still down about 7.6 percent so far in 2013.
- Investment & Company Information