As widely-rumored, Facebook Inc (NASDAQ:FB) has launched its service for videos of original programming. The move is certainly key for the long-term growth of the company, especially as smartphone users want more immersive experiences. But so far, the impact on FB stock has been negative — down 2% to $167.70.
During several earnings calls, CEO Mark Zuckerberg has been clear in his video-first focus. Here’s what he said during the first quarter:
“This quarter we launched a set of new cameras. Photos and video are becoming more common than text, so the camera is becoming more central then the text box in all of our apps…[w]e’re going to keep putting video at the center of all these services.”
As for the original programming, it will be on a tab called Watch (the roll out will happen over the next few weeks), which will be on the mobile app, desktop and TV apps. And of course, FB will use its machine-learning capabilities to personalize the content to your interests. There are also features that will encourage discussions, which will help provide more engagement.
According to the FB announcement:
“We’ve learned from Facebook Live that people’s comments and reactions to a video are often as much a part of the experience as the video itself. So when you watch a show, you can see comments and connect with friends and other viewers while watching, or participate in a dedicated Facebook Group for the show.”
To jump start things, FB has invested millions in contracting out with professional content creators. The result is that there are a variety of diverse shows, such as Nas Daily (someone makes videos with users) and Tastemade’s Kitchen Little (this is a food show with kids). Oh, and there will also be the broadcasting of Major League Baseball games.
FB Stock and Video
OK then, so what does all this mean for FB stock? Is this a good approach for the company?
Well, I think so. Let’s face it, as the overall revenues scale, there will be a need to conquer massive market opportunities. And video certainly fits the bill. According to a study from eMarketer, the spending on traditional TV advertising is expected to hit $71.29 billion this year. No doubt, this is big enough to boost the fortunes of FB stock.
But the company has other major advantages. Note that it has a long history with online games. In other words, it knows how to work with third-parties, like Zynga Inc (NASDAQ:ZNGA), on distributing creative content.
Although, perhaps the most important advantage for FB stock is that the company has a massive platform. During the latest quarter, the number of MAUs (Monthly Active Users) grew by 17% to 2.01 billion and the DAUs (daily active users) rose by the same amount to 1.32 billion.
The good news is that FB has a good track record in leveraging its base, as seen with its launch of Instagram Stories. In about a year, it has reached over 250 million MAUs — which has put tremendous pressure on rival Snap Inc (NYSE:SNAP).
Bottom Line on Facebook Stock
For investors in FB stock, it’s probably best to temper expectations. Developing original content can be tough. Besides, the market is intensely competitive, with operators like Alphabet Inc (NASDAQ:GOOGL,NASDAQ:GOOG), Amazon.com, Inc. (NASDAQ:AMZN) and Netflix, Inc. (NASDAQ:NFLX).
But Facebook is taking the right approach, by relying on third-party content producers that have solid track records. In the meantime, the company will focus on things it knows, such as engaging its users.
Now as I’ve noted many times, I’m bullish on the prospects for FB stock, as the company is likely to remain one of the biggest beneficiaries of mega-trends like social media and mobile. And yes, with this move into video, FB should have even more runway for its growth path.
Tom Taulli runs the InvestorPlace blog IPO Playbook and operates PathwayTax.com, which provides year-round tax services. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
