Facebook Rises as Advertising Sales Growth Seen at BMO

Facebook Inc. (FB), operator of the largest social network, climbed the most in four weeks after analysts at BMO Capital Markets Corp. and Jefferies & Co. upgraded the stock on optimism advertising sales will rise.

The shares increased 5.3 percent to $24.55 at the close in New York. Facebook has dropped 35 percent since an initial public offering last May.

Facebook is working to boost ad revenue by rolling out new products to get users to spend more time on its mobile service. The Menlo Park, California-based company introduced Home last month, with software that integrates features more deeply into some smartphones using Google Inc. (GOOG)’s Android operating system. An upgrade to video-advertising may also bolster sales, according to Daniel Salmon, an analyst at BMO.

“We checked in with around a dozen agencies and ad tech industry contacts over the past week and sentiment around Facebook advertising remains quite positive, with emphasis on improved customer service in particular,” Salmon, who is based in New York, wrote in a research report.

He upgraded the shares to outperform, the equivalent of a buy, from market perform, and increased his target price to $33 from $32. Jefferies upgraded Facebook to buy from hold and raised the target price to $32 from $31.

Facebook shares have slumped about 15 percent through yesterday from May 1, when the company reported first-quarter sales expanded 38 percent to $1.46 billion, a slowdown from the 40 percent growth rate in the fourth quarter.

Ad Products

“We think recent pressure on the stock has created a buying opportunity,” Brian Pitz, an analyst at Jefferies in New York, said in his note.

New ad products should include video-advertising services this year, he said. That could add as much as $4 million a day by the end of 2013, making it the next billion-dollar business for Facebook, Pitz said.

The company also is benefiting from other promotional products including one service that lets app developers advertise their software on mobile devices. Another new service enables advertisers to reach users on Facebook based on their browsing history.

The analysts also said concerns that younger users were becoming less active on the service are probably overblown. Mobile products such as photo-sharing service Instagram show Facebook is catering to the demographic.

While more teens are turning to rival social networks, Facebook usage is still growing among that segment, Chief Operating Officer Sheryl Sandberg said yesterday in an onstage interview at the D: All Things Digital conference in Rancho Palos Verdes, California.

“Teenagers are using other things more,” Sandberg said. “At the same time, they continue to be very active, engaged Facebook users.”

To contact the reporter on this story: Brian Womack in San Francisco at bwomack1@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.