Facebook Inc (FB) Stock Is Your Best Play on Video

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FB stock - Facebook Inc (FB) Stock Is Your Best Play on Video

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Facebook Inc (NASDAQ:FB) has been the best play on a number of megatrends, including social and mobile. And while those are still hot categories, another big trend is coming to the fore: video. Don’t worry, though … FB stock, as it turns out, is a great play on that, too.

That’s largely because Facebook has the kind of thing that will make it an immediate player in just about anything it tries to go after. That’s scale, illustrated by metrics such as …

  • Daily active users (DAUs): 1.23 billion
  • Mobile DAUs: 1.15 billion
  • Monthly Active Users (MAUs): 1.86 billion

Throw in a talented engineering team, multiple digital platforms — including Instagram, Messenger and WhatsApp — and a substantial cash position backing Facebook stock, and FB can do just about anything it wants.

And right now, it wants to do video.

Facebook and the Digital Video Revolution

Based on research from Cisco Systems, Inc. (NASDAQ:CSCO), video represented a whopping 60% of mobile traffic last year. In about five years, this is expected to reach 78%.

The digital world is becoming a video world, so the market opportunity is immense.

FB stock chart view 1

And the Facebook platform is ideal for digital video. People log into the social network to share experiences, and there are few more immersive experiences than video. Moreover, FB itself has a tremendous database of user behaviors and demographics, which allows Facebook to post the most relevant videos possible … and in turn gather even more detailed information.

Take Facebook CEO Mark Zuckerberg’s comments on the most recent earnings call:

“I’ve said before that I see video as a megatrend on the same order as mobile. That’s why we’re going to keep putting video first across our family of apps and making it easier for people to capture and share video in new ways.”

A fun stat for you: During the call, the word “video” was mentioned 68 times, versus just 26 for “mobile.”

The revenue opportunity is enormous for FB stock. According to eMarketer, spending on digital video ads is forecast to jump from $9.84 billion in 2016 to $16.69 billion by 2020.

Facebook is far from a guaranteed winner, sure. The market for online video is both expansive and competitive. FB has social competition in Snap Inc (NYSE:SNAP) and Twitter Inc (NYSE:TWTR), streaming competition from the likes of Hulu, Netflix, Inc. (NASDAQ:NFLX) and Amazon.com, Inc. (NASDAQ:AMZN), and even content creators — such as CBS Corporation (NYSE:CBS) — that are creating their own over-the-top services.

Still, the potential growth in the digital video market is too important to ignore, and Facebook is running at it headfirst.

Bottom Line on FB Stock

At least in the near-term, Facebook might get an extra lift from the stumbles at Alphabet’s YouTube service. GOOGL has been placing ads along content that some consider highly offensive, and a number of companies have suspended their campaigns as a result. Right now, the number sits at more than 250.

And it’s a good bet that at least some of those sponsors will go to Facebook, where there’s a bit more — though not absolute — control over placement. It’s certainly the only other alternative that has nearly the scale of YouTube.

In the meanwhile, it’s hard not to love the valuation on FB stock right now. Shares currently trade at only 21 times forward earnings projections, and that shrinks to 19 when you strip out Facebook’s $10 per share or so in cash. As InvestorPlace.com’s Vince Martin notes:

“The S&P 500 index trades at about 18x-plus 2017 profits and 17x 2018 figures. That means, somewhat incredibly, that Facebook stock trades at a multiple not far above the average U.S. large cap stock. Coming off a year where FB grew revenue 57% and doubled operating income, that seems ridiculously low.”

Facebook stock looks like a great way to play the fast-growing video megatrend. And right now, somehow, it appears it can still be bought for a reasonable price.

Tom Taulli runs the InvestorPlace blog IPO Playbook and is the author of various books, including Taxes 2017: Saving A BundleFollow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

Tom Taulli is the author of various books. They include Artificial Intelligence Basics and the Robotic Process Automation Handbook. His upcoming book is called Generative AI: How ChatGPT and other AI Tools Will Revolutionize Business.


Article printed from InvestorPlace Media, https://investorplace.com/2017/03/facebook-inc-fb-stock-best-play-video/.

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