It’s certainly been a standout year for Facebook Inc (FB). Then again, Mark Zuckerberg continues to make spot-on moves, in terms of the focus on key areas like mobile and video. As a result, Facebook stock has gained about 35% this year, and the market cap is now at a staggering $300 billion.
Then what is the outlook for next year? Can Facebook stock keep up the pace?
Well, the good news is that the company has been busy with product innovation, which should provide some fuel for the Facebook stock price.
For example, FB plans to launch the following in 2016:
Facebook at Work: This is the professional version of the social network, allowing for businesses to collaborate with employees and partners.
Given that over 1.5 billion people are experienced in Facebook’s core platform, the learning curve for Facebook at Work will likely be smooth. Besides, the business model should be compelling — that is, the offering is expected to be free except for some add-on features, such as analytics and customer support.
Founder and CEO of Scalus Kristen Koh Goldstein had this to say:
“With Facebook at Work, Zuckerberg’s savviness in recognizing macro-level trends has enabled the company to tap into Facebook’s ‘sticky factor’ with millennials, a huge cross section of its user base that doesn’t recognize traditional boundaries between work and personal apps. Facebook at Work has the distinct competitive advantage of its robust user base, which allows it to instantly tap into the multi-billion dollar enterprise collaboration market.”
Facebook Professional Services: This provides a listing of service providers, including everything from wedding planners to contractors to plumbers and so on. Yes, it looks like FB is leveraging its massive platform to enter a market that has been dominated by operators like Yelp (YELP). Keep in mind that there are over 50 million businesses with Facebook pages already. But there is another advantage. For the most part, the ratings system on the Facebook Professional Services system could be more relevant and accurate since it will be based on the comments from friends and followers.
Oculus Rift: This is the FB virtual reality system, which includes a headset that provides a user with an immersive experience. The initial focus will be gaming first, but Zuckerberg has also touted the Rift’s much broader applications as a next-generation social networking accessory and a boon for Facebook advertisements. There will likely be challenges, though. Consider that it will take time to build compelling content for Oculus Rift and the pricing may be prohibitive (it could go for over $1,500). There will also be lots of competition to deal with, such as from players like Sony (SNE), Alphabet (GOOG, GOOGL), Samsung (SSNLF), Microsoft (MSFT) and GoPro (GRPO). Even Zuckerberg recently played down expectations. On the Q3 earnings call, he said:
“It’s important also to recognize that this is going to grow slowly, like computers and mobile phones when they first arrived. So we’re committed to Oculus and virtual reality for the long-term.”
In other words, it’s probably a good bet that the Oculus Rift will not be much of a catalyst for Facebook stock in 2016.
Live: This is the live video broadcasting service from FB. As seen with the success of similar offerings, like Twitter’s (TWTR) Periscope, the activity has become popular with users (during the first five months of the launch of Periscope, the app has attracted over 10 million users). Actually, of all the new products coming from the social networking giant, Live could perhaps be the most impactful for FB stock. As the company’s head of ad product noted: “a year or two from now, we think Facebook will be mostly video.” With access to more bandwidth and the prevalence of high-end smartphones, this vision makes a lot of sense. Also, given the upcoming election year, there will likely be a surge in live video broadcasting – which could ultimately be a nice revenue generator for FB.
A Big Acquisition to Boost Facebook Stock?
The last time FB made a major acquisition was back in March 2014, when the company shelled out $2 billion for Oculus Rift. So yes, going into 2016, it seems reasonable that Zuckerberg will rev up another big deal.
But what are the prospects? Well, Facebook stock could get a boost from making a big play for mobile payments. It’s something that other major operators, like Apple (AAPL) and Alphabet, have invested heavily in.
And the reason is simple: Mobile payments is expected to soar. Based on research from eMarketer, the market is forecasted to go from $8.71 billion in 2015 to $27.05 billion in 2016 in the U.S.
There are a variety of targets for FB to choose from, such as Square (SQ) and Stripe, but why not buy an industry leader such as PayPal (PYPL)? The company has recently spun off from eBay (EBAY) and has a massive base of 173 million. PYPL also continues to crank out strong growth in payments volume, up 27% to $70 billion in the latest quarter.
What Really Matters in 2016
No doubt, the critical factor is the mobile advertising market. Again, eMarketer has some interesting insights.
The research firm predicts that the biggest beneficiary of the growth in mobile — for the next few years — will be FB. The market share is expected to increase from 18.5% in 2014 to about 20.3% in 2017 in the U.S. During this period, the overall sales are forecasted to jump from $9.15 billion to $50.84 billion.
But the estimate for FB could prove to be on the low side. After all, the company has not leveraged key assets such as Instagram (400 million users), WhatsApp (900 million users) and Messenger (700 million users).
Bottom Line on Facebook Stock
All in all, things are certainly looking promising for FB going into 2016. But then again, investors have already factored much of this into the stock price, with the forward price-to-earnings ratio at a hefty 37. By comparison, Alphabet’s is at a more moderate 22 times forward earnings.
In fact, for FB, there may be more volatility for next year. Hey, what if Oculus proves to be dud? Or how about if the global economy decelerates even more, which pulls on ad spending?
There may even be a shift on Wall Street’s focus away from growth stocks. This is the opinion of one of the most noted investment strategists, Tom Lee (a managing partner at Fundstrat), who thinks that value stocks will get much more attention in 2016.
In other words, while FB is definitely in fine shape, the timing may not be right in terms of the stock. Having some patience may make for better returns going forward.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
