Facebook Inc (FB) Stock Can Ride Messenger to the Moon

Advertisement

Facebook Inc’s (NASDAQ:FB) recent F8 conference was certainly no disappointment. The company showcased its efforts with augmented reality, which seems to be about crushing Snap Inc (NYSE:SNAP). But there were also futuristic experiments, such as a brain-to-computer interface and even the ability for skin to hear language. Yes, such things seem kind of zany, but hey, not long ago, so did Facebook and FB stock, right?

Facebook Inc (FB) Stock Can Ride Messenger to the Moon

Source: Shutterstock

Definitely.

OK, but what were some of the things at F8 that are, well, more about the here-and-now? What may be the drivers for revenues for Facebook stock?

Interestingly, I think there was something that actually did not get too much attention: the Messenger platform. Even though there are roughly 1.2 billion monthly active users, the monetization has been fairly minimal. But this is likely to change soon — and yes, should be a nice boost to FB stock. As seen with Instagram, the company does have a knack for wringing dollars from apps.

Messenger and Facebook Stock

Yet Messenger may prove an even bigger opportunity. The reason is that the app is a perfect fit for local commerce. Messenger is highly engaging, often used while people are on the go.

What’s more, millions of businesses already have Facebook pages, which are seamlessly connected to Messenger (note that 80% of messages from these pages come from Messenger). It’s also fairly easy to create a bot, which is essentially an app.

To this end, FB released Smart Replies, which leverages AI (Artificial Intelligence) to process common messages that restaurants receive from customers, such as for the hours, menu items and so on. The strategy is to blend human responses with automation – which should help to improve with the overall scaling. Although, there are already various large restaurants, such as Subway, Yum! Brands, Inc. (NYSE:YUM) and Domino’s Pizza, Inc. (NYSE:DPZ) that use bots to allow customers to place orders.

And some companies are pushing the boundaries of innovation. Just look at Sephora, which has a bot that scans your photo and suggests the best lipstick color match. There is also a promotion to get a discount at a local retail outlet.

According to Facebook vice president David Marcus: “When you come to think of it, Messenger has become the de facto Yellow Pages without having any phone numbers. We have a shot of becoming the Yellow Pages of messaging too.”

The market for local commerce is definitely enormous — and should provide quite a bit of opportunity for Facebook stock. According to the most recent investor presentation from Yelp Inc (NYSE:YELP), there 26 million local business in the U.S. and the spending on advertising is a whopping $140 billion.

But the monetization opportunity for FB stock is more than just about being an ad play. The company is likely to benefit from providing payments services as well. Consider that FB has been striking partnerships with operators like PayPal Holdings Inc (NASDAQ:PYPL), Mastercard Inc (NYSE:MA) and American Express Company (NYSE:AXP).

No doubt, the mobile payments industry is expected to benefit from tremendous long-term growth.  According to eMarketer, U.S. volume alone is forecasted to jump from $8.71 billion in 2015 to a whopping $210.45 billion by 2019. However, keep in mind that about 85% of global transactions are still done with old-fashioned cash.

Bottom Line on FB Stock

As for FB stock, it does seem a bit toppy. Note that the shares have climbed 31.5% this year and the price-to-multiple ratio is 40X. By comparison, Alphabet Inc (NASDAQ:GOOG,NASDAQ:GOOGL) sports a 30X multiple and Apple Inc. (NASDAQ:AAPL) trades at 18X.

Then again, these companies are a much more mature — and are trying to find huge markets to move the needle on the top-line. But as for FB, the company still has a relatively lower revenue base, so it is easier to keep up the hefty growth rate. What’s more, it certainly helps that the company’s online properties like Messenger have yet to be tapped.

Tom Taulli runs the InvestorPlace blog IPO Playbook as well as OptionExercise.com, which provides interactive tools & services for employee stock options of pre/post IPO companiesFollow 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/2017/05/facebook-inc-fb-stock-ride-messenger/.

©2024 InvestorPlace Media, LLC