William Blair & Company initiated research coverage of Facebook, Inc. (FB $32.06), the world's largest social networking site and Web destination, with an Outperform rating and Aggressive Growth company profile.
"Facebook is the most trafficked website in the world," analyst Ralph Schackart said. "It has amassed tremendous scale via 901 million monthly active users and 125 billion friendships. Moreover, 55% of users access Facebook on mobile devices and 45% have been active the last six of seven days. We believe this is the largest online demand platform a generation will experience."
He added, "While staying grounded in the financial model and attempting to filter out the sensationalism, we are very attracted to Facebook's monetization opportunity for two simple reasons. First, Facebook does not even need to grow to monetize; it has accomplished the hard part of building scale (a scale that no other social network may ever achieve). Second, its effective CPM near $0.20 is less than 10% of the Internet average of $2.50, creating a substantial opportunity to increase.
We believe that Facebook is becoming a daily utility with high switching costs associated with the personal and social content shared each day on Facebook. While virtual, the social interaction that users engage in through updates, status changes, likes, shares, and playlists, among others, builds long-term relationships and audiences. We believe it would be quite difficult for a competing platform to emerge to make Facebook irrelevant. Facebook, in our view, has the best scale, engagement, and opportunity to solve the digital universe problem."
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Current Ratings Distribution (as of 05/31/12)
Outperform (Buy): 60%
Market Perform (Hold): 32%
Underperform (Sell): 1%
Inv. Banking Relationships*
Outperform (Buy): 9%
Market Perform (Hold): 1%
Underperform (Sell): 0%
* Percentage of companies in each rating category that are investment banking clients, defined as companies for which William Blair has received compensation for investment banking services within the past 12 months.
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