Facebook Inc‘s (FB) U.S. operations are considered its most mature, with the least amount of long-term upside. Of those properties, its core and Instagram properties are already big money makers, but what many don’t realize is how much upside lies in these seemingly mature properties. Furthermore, investors don’t realize what that upside could mean for Facebook stock.
A recent study from eMarketer found that Facebook’s core U.S. business will grow from 158.4 million users at the end of last year to 177.5 million in 2020. If accurate, 53.1% of the U.S. population will then be logged in to Facebook, up from 49.3% at then end of last year.
While Facebook’s monthly active user presence in the U.S. is enormous, it accounts for only 13.8% of its total MAU. With Facebook’s U.S. and Canada operations already responsible for 51% of its total revenue, investors expect the rest of world to drive FB’s growth from this point forward.
Before moving on, take notice of the data for Instagram as well. It ended last year with 77.6 million MAUs in the U.S., but by 2020 that number is expected to grow to upwards of 116 million.
Keep in mind, Instagram has more than 400 million MAUs worldwide, so, much like Facebook’s core, investors expect the majority of long-term growth to come from outside the U.S. for Instagram.
Let’s Crunch the Numbers
All things considered, we are looking at two FB properties in the U.S. that are believed to be “mature,” and are not considered the biggest growth drivers moving forward. Instead, investors are looking at Instagram and Facebook core’s revenue potential outside the U.S., and also the monetization of WhatsApp and Messenger, which are largely untapped assets.
However, let’s apply some simple math using conservative estimates.
Facebook’s revenue per user in the U.S. rose to $13.54 during its last quarter. That represents a 29% increase quarter over quarter and a 50% increase year over year. Given that FB is still far from the $50 plus that Alphabet Inc (GOOG, GOOGL) earns from its $67 billion plus ad business, and that Facebook now has the largest ecosystem in the world and is making moves by the day to mirror the successful ad business that Alphabet built, it is not unreasonable to figure that FB’s ARPU in the U.S. jumps to $25 by 2020. More than likely, $25 is very conservative.
Furthermore, Instagram’s ARPU in the U.S. is going to soar. Many analysts think its total ARPU can eventually surpass $9. This suggests it can be even greater in the U.S., but for the sake of argument, let’s just assume that Instagram can reach an ARPU of $9 in the U.S. by 2020.
When you factor these very conservative ARPU outlooks for Instagram and Facebook core (U.S. only) with MAU outlooks for 2020, you arrive at nearly $5.5 billion. That is almost as much as Facebook reported in total revenue during its last quarter.
In other words, these conservative ARPU figures, coupled with the MAU outlook for both properties, will cause North American revenue to double from Q4 2015 to Q4 2016. What makes this amazing is that it completely removes WhatsApp, Messenger, and Oculus from the equation, and the revenue creation of each respective property in the U.S. Furthermore, these figures remove Canada from the equation, which had 60 million MAUs at the end of last year, and is figured into North American revenue for FB.
All things considered, if FB can drive North American revenue 100% higher in just five years, with Instagram and Facebook core only, then the future looks very bright for Facebook stock. After all, that still leaves 90% of Facebook MAUs, 85% of Instagram, and essentially all of Messenger, WhatsApp and Oculus to drive revenue even higher. Thus, investors should be very excited about the long-term prospects for FB stock.
As of this writing, Brian Nichols does not hold a position in any of the aforementioned securities.
