What 8 Billion Daily Views Means for Facebook Stock (FB)

Facebook (FB) stock may be flirting with a price of $110 and market capitalization over $300 billion, but FB is just getting warmed up.

What 8 Billion Daily Views Means for Facebook Stock (FB)The reason? Facebook video. The social media giant’s blitzkrieg of the online video industry is a huge long-term catalyst for ad revenue.

Indeed, Facebook’s earnings showed investors a lot of big numbers — more than 1.5 billion users every month, 40% growth in revenue to $4.5 billion, 78% mobile share of its $4.3 billion in advertising revenue.

The biggest number, however was 8 billion … that’s the number of videos that users watch on Facebook every day.

With that said, Facebook’s revenue continues to grow from traditional advertising channels. The company is yet to monetize large platforms like Messenger, WhatsApp and is just getting started with Instagram.

Regardless, Facebook earnings showed a 61% increase in ad prices and a global average revenue per user of $2.97, up from $2.40 last year.

Therefore, Facebook stock is not really taking into account the success or failure of Facebook video, which is very much a hidden catalyst that’s not particularly meaningful for Facebook stock. It’s just another big number.

Instead, it is the continued growth in ad prices and the near-term monetization of those large networks along with the penetration into new businesses like virtual reality that is driving FB to a market cap of $300 billion.

So What Does Video Mean to FB Stock?

One could argue that Facebook video is a bonus, a service that could add further stock upside depending on its success.

FB noted 8 billion daily videos, twice the number of views as the company reported just six months prior. Furthermore, FB noted that 500 million people are watching Facebook videos daily.

Albeit, the company does not yet report revenue and earnings from video, and while it has launched several new products for video, like 360-degree video and profile videos among others, it just recently begun ramping-up advertising products to monetize this enormous load of content.

This includes a partnership with TV-ratings leader Nielsen that will let advertisers run TV and Facebook campaigns simultaneously. This is important since ratings are how networks and video content providers measure the success of advertisements. But on platforms like Facebook the measure of success is views, likes, comments, shares, etc.

And Facebook is reportedly testing a YouTube-like video channel where users can save their favorite videos and recommend videos to others, or have suggestions based on what users have liked.

The bottom line is that video is very important for the future of both the company and Facebook stock due the sheer size of the opportunity.

How Big of an Opportunity Is This for Facebook Stock?

Earlier this year eMarketer figured that digital video advertising would top $7.75 billion, up from $5.8 billion last year. The majority of this growth is expected to come from mobile, growing 70.4% this year to $2.62 billion.

The growth of mobile video advertising bodes well for Facebook, as nearly 80% of its videos are watched on mobile devices. By 2019, this market will reach $14.4 billion, and mobile will account for more than half of that total.

All things considered, when eMarketer provided its outlook, there were a lot of unknowns. Specifically, eMarketer did not know that FB’s daily views would double to 8 billion in just six months time, or that Facebook video would partner with Nielsen, or launch a competing YouTube service in the near future … things like this are hard to figure.

Therefore, with the overall U.S. ad-spending market nearing $190 billion, and digital already almost one-third of that market, I find it hard to believe that digital video advertising on mobile will fail to reach $8 billion by 2019. This doesn’t seem realistic given the billions of views on both YouTube and Facebook video alone, or the fact that video ad prices are 10 to 20 times higher than traditional display ads.

As a result, video could very well be a $10 billion advertising opportunity for Facebook alone; driving revenue and profits higher, even for a company that is expected to top $23.3 billion in revenue next year.

While a market capitalization over $300 billion makes Facebook stock seem very expensive, it trades at 40 times future earnings. Given all that FB has going for it — including a lot of revenue and profit upside — that valuation is not unjustified, and might even represent a good buying opportunity.

As of this writing, Brian Nichols was long FB stock.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/11/facebook-stock-fb-earnings-video/.

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