After a strong showing in advertising revenues in the second quarter, Facebook's prospects have improved, Mark Mahaney of RBC Capital Markets said Tuesday.
"Look, that was an inflection-point quarter, fundamentally speaking, on a stock that was one of the most controversial in the internet space. So, you put that kind of combination together, you're going to get a pop," he said. "We think this stock can go up to $40, which isn't much upside from here."
Shares of Facebook gained 6.2 percent to close at $37.63, just 37 cents from its initial public offering price.
On CNBC's "Fast Money," Mahaney explained the reasons behind his "outperform" rating on the stock.
"We have almost $1 in earnings next year, a 30 percent-plus earnings grower, maxed out at a 40 P/E multiple," he said. "That's the logic behind a $40 price target."
Mahaney credited the social media giant for its acceleration in revenues.
"This company was caught flat-foot by this massive trend in the internet space toward mobile usage," he said. "It took them about four or five quarters to catch up, but they caught up, and they caught up extremely well. They blew past most people's mobile ad revenue numbers. And they've really kind of shown advertisers that they can get a decent ROI without undermining the user experience by putting ads into people's mobile phone news feeds."