Video ads could become the next billion-dollar business for Facebook, according to Jefferies & Co., which upped its rating on the stock Thursday.
A recent decline in share price creates a buying opportunity for investors, particularly before the company launches video ads, said analyst Brian Pitz. He upgraded his rating on the stock to "buy" from "hold" and increased his price target by a dollar to $32.
Pitz cited a report by The Financial Times saying that Facebook will unveil video ads in July in 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.
The company's stock price has fallen about 16 percent so far in May, and Pitz said worry over declining use, particularly with younger users. He noted that user engagement reached its highest level ever in the first quarter, with six of 10 users logging in on a daily basis.
The company's shares have also been under 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.
Pitz said he thinks the financial impact from the campaign will be muted, and many of the advertisers that left can easily return.
Shares of Facebook Inc., based in Menlo Park, Calif., climbed 3 percent, or 70 cents, to $24.02 Thursday before markets opened.