Facebook Inc (FB) Stock Could Be Unstoppable with Food Delivery Revenue Stream

In a move expected by many, Facebook Inc (NASDAQ:FB) has rolled out food ordering capability through its website. Facebook users can now order food through the Facebook platform by clicking on the “Start Order” button available on certain restaurants’ business pages.

FB stock
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None of the ordering is done in-house. That is, after you click the “Start Order” button, an in-app browser will pop up and direct you to existing food ordering and delivery platforms that have partnered with Facebook on this project. Such partners include GrubHub Inc (NYSE:GRUB), Delivery.com, and DoorDash, among others.

Because of the lack of complexity to FB’s new food ordering platform, many investors are writing it off as just another largely meaningless test project for the social media giant. But that is the wrong way of looking at it. FB doesn’t need to do anything complex here to make food ordering a substantial revenue source. All Facebook needs is size.

And Facebook has that. To the tune of 2 billion monthly users.

Consequently, I see food ordering as yet another huge growth lever Facebook is starting to pull that will accelerate growth over the next several years. That makes FB stock, which still trades at an attractive valuation, a must-buy here.

Facebook’s Food Ordering Is A Big Step

Facebook’s roll-out of food ordering through its website is a positive for three big reasons. Firstly, ad revenue will go up in a big way.

Undoubtedly, adding food ordering capability will increase FB user engagement. Simply, users will spend more time on the platform now than ever before. That will have a positive effect on average revenue per user. When you have 2 billion monthly average users, every marginal uptick in average revenue per user is a big deal to the top-line. Ad revenue dollars will continue to pile up.

Secondly, Facebook is knocking on the doors of another potentially huge revenue stream in transaction-related fees for food ordering.

Food ordering capability is one of Facebook’s many steps in turning into a transaction marketplace. Because of its huge and unparalleled size, it makes sense for Facebook to turn into an all-in-one, one-stop-shop to discover, review and order from restaurants. Essentially, FB puts the whole process of deciding where to eat and actually ordering food in the same spot.

Because that whole process will be hosted through Facebook, the social media giant will naturally gravitate towards being a rent taker in the process. Facebook will skim its 2% or some commission off the top for all orders processed through the platform.

That small fee will add up in a big way. Digital food ordering is a rapidly growing industry. Look no further than the price chart for GRUB stock in 2017. As the at-home economy merges with digital commerce, online food ordering will only continue to grow. The new “dinner and movie” night is ordering food in and watching a Netflix, Inc. (NASDAQ:NFLX) original.

Inevitably, FB will become a rent-taker in that rapidly growing space. That is yet another huge additional revenue stream that will kick in and ramp up over the next several years.

Thirdly, Facebook is gradually becoming an all-in-one stop for the entire Internet. What was once a social media platform for people to update one another on what they are doing is now a necessary utility for the Internet. Just think of how many other platforms use “Login with Facebook”.

Facebook is your digital ID. Facebook can leverage its position as the digital ID to become much, much more than a social media platform with big ad revenues. Food-ordering is a step in the right direction. So is Marketplace. Same with Workplace and commerce being integrated into Messenger.

Bottom Line on FB Stock

Because of its size, FB has a plethora of growth levers it can pull at any time to supercharge growth. As the ad revenue growth story starts to slow, FB is starting to pull some of those levers. The result will be supercharged growth for many, many years to come.

All this, and FB stock still trades at just 27-times next year’s earnings estimate for earnings growth of about 28% per year. That is the definition of growth at a reasonable price.

As of this writing, Luke Lango was long FB.

Article printed from InvestorPlace Media, https://investorplace.com/2017/10/fb-stock-food-revenue/.

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