- Facebook - Publicis have announced a deal estimated to be valued at $500 million.
- The deal will enable more effective target advertising for Publicis and more efficient ad inventory utilization for Facebook.
- Though the deal is a win-win outcome, we continue to view Facebook as a risky investment given its high current valuations.
Social media giant Facebook (NASDAQ:FB) announced a new deal with advertising giant Publicis Groupe (an OTC stock) on May 19th, which brings together the mainstream media advertising power and experience of Publicis to complement the digital and data strength of Facebook. The deal is reported to be valued around $500 million and closely follows the $100 million deal signed by Instagram with Omnicom in March.
Deal aimed at improving target advertising
According to an article on WSJ, the deal will closely integrate Facebook’s information with Publicis’ systems for ad targeting, optimization and planning purposes. We see two clear benefits of the tie-up. One Publicis gains from the digital edge as access to Facebook’s vast data will enable the company to better target advertisements and improve ad effectiveness.
On the other hand, the deal will be a huge positive for Facebook enabling the social network to better utilize its ad inventory using Publicis’ customer base. The deal could be yet another boost to the strong topline growth Facebook has seen ever since it solved the mobile puzzle in Q2 2013. Let’s take a look at some of the fundamental indicators and their performance over the last 8 quarters.
It is clearly seen that the fundamentals saw a correction up to Q2 2013 since its IPO, which was due to Facebook’s inability to leverage its fast growing mobile user base. A solution to the mobile puzzle bolstered the fundamentals over the next 6 quarters, bringing Facebook to where it stands today.
It is here that deals like the one with Publicis and the earlier deal between Instagram and Omnicom could provide the next big push to the topline of the social media giant. These deals will go a long way to sustain the extraordinarily high growth rate Facebook is currently running at.
We see the Facebook Publicis deal as a win-win situation for the two companies involved. More number of such deals will need to follow in order to justify the high valuations currently priced into Facebook’s stock. The premium valuations enjoyed by Facebook are reflected in its PE ratio of 79 and price to sales ratio of 17.33, valuation levels which we see as high risk and difficult to justify. While we would stay away at these valuations, a growth investor with a stomach for risks will find Facebook stock as an attractive investment option.
We are bearish on FB stock. View our Facebook stock analysis.
To see Facebook’s latest stock price movement, click here (NASDAQ:FB)