Facebook (FB) stock has been on a roller coaster with the rest of the stock market this year, but it’s still up 18% in 2015, easily trumping the -3% returns of the S&P 500.
The good news for investors: A newly composed team of Facebook engineers is making it increasingly likely that the outperformance will continue.
The key to growing the FB stock price is twofold: One, the company must increase the average revenue per user (ARPU); and two, the company needs to increase the number of users. It’s that simple.
While the formula itself is straightforward, execution is a different story. Just ask Twitter (TWTR), which has struggled to meaningfully grow its user base since its IPO in 2013.
Thankfully, Facebook isn’t Twitter. And despite having a monthly user base of more than 1.5 billion people, it has aspirations to add 1 billion more. That’s a tall order, to be sure, but one deceptively simple strategy makes it not only possible but likely.
Needless to say, another billion users will do great things for the FB stock price.
Working Smarter
Facebook’s user growth going forward will come from emerging markets. It’s a mathematical inevitability. Developed markets naturally have a larger percentage of their population online, and thus more people use FB. But with a global population above 7 billion, more than 4 billion people still don’t have internet access.
Increasing ARPU is the short-term driver of FB stock. But in the long term, it’s getting people online and getting them on Facebook. That’s where the company is starting to get really creative.
The social network already has plans to launch drones into the sky to give emerging economies the gift of the internet. The next step — getting them on Facebook — is being championed by a group of engineers on the Facebook Accessibility team. Here’s what they’re doing:
In developing economies, like India for example, there aren’t many 4G — or even 3G — networks. Most mobile connections are on the much slower 2G network, and FB isn’t optimized for that … yet.
The Facebook Accessibility team is tackling that in a few different ways:
- If you’re on a 2G network, your News Feed will now automatically load fewer videos and more status updates and links, making your experience more fluid.
- While you’re reading, FB will load additional stories in your feed so you don’t have to wait for it to buffer when you scroll.
- The team is adopting new photo formats that are less data-intensive.
Roughly a billion people in India alone still don’t have internet, so once initiatives like Facebook’s Internet.org start to take off, so too should the FB stock price. Sure, the ARPU won’t be sky-high to begin with, but it opens the door to another avenue for future growth.
As exciting growth engines like the Oculus Rift, Instagram and Facebook Video grab most of the short-term attention and claim credit for the upwards bias to the FB stock price, the Facebook Accessibility team is quietly executing its long-term — and arguably more important — master plan.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
