Facebook Inc (FB) stock is now sporting a $300 billion market capitalization, making it one of the most valuable companies in the world. With 12,000 employees and $16 billion in trailing 12-month revenue, it hardly compares to a company like IBM that is half as valuable but many times larger in both revenue and employee count.
Therefore, Facebook’s valuation isn’t really driven by its 61% increase in ad prices or $4.3 billion in Q3 ad revenue, but rather what 1.55 billion monthly active users and FB’s long list of projects could ultimately mean for its future.
With that said, let’s look at eight big things that Facebook is working on right now that could be a game changer for the company and FB stock. After all, for FB to support a $300 billion market capitalization and create long-term shareholder value, Facebook needs much more than $4.3 billion in quarterly ad sales.
Facebook unveiled upgrades to the Messenger platform earlier this year at its f8 conference. Users may now access third-party apps within the Messenger app. By doing so, doors have been opened for businesses to communicate with Facebook users and sell products.
What Facebook hasn’t disclosed is how it plans to monetize the Messenger platform, nor has it unveiled similar plans for WhatsApp. However, future monetization and a WhatsApp platform are inevitable, and one way that FB can achieve this feat is with payments.
Facebook already allows Messenger users to purchase goods from developers who have apps in the Messenger platform. It also allows users to send money to one another. Plus, on its mobile Facebook app, the company has implemented a “Buy” button and is preparing to launch Shoppable Pages for businesses on Facebook.
Therefore, a lot of transactions are about to take place across Facebook-owned sites and applications. So, if PayPal can create a $9-billion-per-year business from the transaction fees of 173 million users, investors have to assume that FB can do even better with 1.55 billion monthly active users, implying that payments could be FB’s next big thing.
Over the last year, FB has made a hard push into videos, and since April the number of videos watched on Facebook has risen from 4 billion to 8 billion daily.
Much like its Messenger platform, FB hasn’t really started to monetize its video business. With plans for a YouTube-like service, and a partnership with ratings agency Nielsen, investors know that FB will be taking aim at TV ad dollars as more viewing habits shifts to an Internet streaming format.
With that said, I recently wrote an article explaining why and how video could be a $10 billion opportunity for Facebook by 2019. Given the size and growth of its video business, combined with its ad targeting capability, most believe that video advertising will become a big chunk of Facebook’s long-term revenue and profit growth, and be a big driver for FB stock.
Not long ago, Facebook launched Instant Articles with a handful of publishers. This content, which is embedded into the Facebook website and mobile app, loads much faster and keeps users in the Facebook ecosystem, allowing FB to deliver ads once third-party content is loaded.
FB shares ad revenue with its content partners, while also using its targeting technology to deliver content to users who care. This allows the company to reach an audience far larger than what’s possible with other content-hosting platforms such as Yahoo (YHOO). From this content and service, FB is preparing to launch its standalone news app, Notify, with the same concept of delivering content to the users who care about that content.
The possibilities for FB as a content host are endless, as Facebook has the ability to replicate Yahoo’s $5-billion-per-year business. The difference for Facebook lies in the size of its network, which can significantly increase the reach of content. Once fully developed, there’s no reason that FB couldn’t achieve ad revenue equal to, or even exceeding, that of Yahoo from hosting and delivering third-party content.
If so, this bodes well for Facebook stock.
There’s no question that Google is the king of Internet search, but with over 1.5 billion searches per day and a library of 2 trillion posts, FB is making lots of changes to Search to make it a larger piece of the FB experience, and more meaningful for Facebook stock. This includes suggested search results, which opens the door for ads, prioritized results, and real-time results for breaking news and trending topics.
Furthermore, with so much third-party content being shared on Facebook, users will be able to access that information in Search to make the service more Google-like. Given that most of Google’s $60 billion advertising business derives from search, this could be a great opportunity for FB stock long-term.
There are some things that FB’s working on that may be hard for investors to wrap their minds around, projects that Mark Zuckerberg thinks are the next big thing. The problem, though, is that some of these endeavors may seem too futuristic, making their market value hard to predict.
These projects span far beyond FB and include virtual reality, WiFi from space, and artificial intelligence.
Zuckerberg has always been passionate about virtual reality, so much that FB was willing to pay $2 billion for Oculus to pursue it. The big question is whether virtual reality is the next big thing, technology that may eventually replace the smartphone like the iPhone did to the Motorola Razr. Only time will tell, but if so, we’re talking about huge implications for Facebook stock price.
FB’s CTO Mike Schroepfer has spent a lot of time talking up artificial intelligence, and a technology that allows FB users to learn more about images thanks to AI. Schroepfer noted that there is already technology in place that can read text from a screen, but FB’s version wants to know the backstory behind a photo, event, or even a trending topic. Given the data that FB collects on a daily basis, it certainly seems that Facebook could bring such a thing to life, which could be worth quite a bit to the right advertisers.
Lastly, FB may have 1.55 billion monthly active users, which is mind-boggling in itself, but the number is rather small compared to the world population of 7.3 billion people, or the two-thirds of the world’s population that does not have Internet access. By partnering with French satellite company Eutelsat, Zuckerberg wants to beam Wi-Fi from space to provide billions of people with Internet access. Consequently, this could increase Facebook’s MAUs and advertising revenue, plus drive FB stock higher.
When you consider the billions that broadband Internet and satellite Internet service providers spend on infrastructure, it is amazing that FB considers itself close to achieving this feat, ready to provide service to part of Africa next year. While no one expects FB to deliver Internet speeds in the gigabits per second, it will provide access to those who are lacking, thereby making the world a more connected place … with Facebook, of course.
Over the past two decades, there have been very few people in the technology industry who knew what consumers wanted before they wanted it. One is Bill Gates with Microsoft (MSFT) Windows, another is Steve Jobs with Apple’s (AAPL) Mac and iPhone, and even Tesla’s (TSLA) Elon Musk and Amazon’s (AMZN) Jeff Bezos fit into the discussion. However, it’s no question that Zuckerberg is another, which is why investors should be excited looking ahead to what Zuckerberg & Company have in store for the next 10 years.
As a result, the benefit of the doubt is why FB stock price supports a $300 billion market capitalization, and why investors are likely right to remain optimistic.
Brian Nichols recently sold his stake in FB, but plans to buy back at a later time.
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