Social media giant Facebook Inc (NASDAQ:FB) has been turning in impressive gains this year with shares rising more than 50% over the past 12 months. FB stock has seen its share price decline over the past month though, as investors wonder whether or not the social media firm will be able to deliver that kind of growth in 2018.
Bears say that the FB stock price is headed for a decline in the coming year as the firm runs out of advertising space on its site. While it is true that Facebook’s flagship social media site has indeed reached saturation when it comes to ad space, that doesn’t take into account the massive potential that the firm holds elsewhere in its advertising business.
FB’s Ad Space Problem
FB stock skeptics argue that the firm won’t be able to turn in the same impressive growth in 2018 because it doesn’t have any more advertising space to sell. That’s true to some extent, because Facebook isn’t able to squeeze any more ads onto its newsfeeds without significantly impacting the user experience.
However that doesn’t mean there’s not any room left to grow. Facebook also owns Instagram, a photo-sharing site that has been competing with newer social platforms like Snap Inc’s (NYSE:SNAP) Snapchat. FB also owns two of the top three messaging platforms in the world: Facebook Messenger and WhatsApp. So far, the company hasn’t done much to monetize the two, but there is a lot of potential for Facebook to advertise there as well.
The most exciting of Facebook’s advertising prospects, though, is Watch, a new video streaming tab that the company is planning to build out in the year ahead. Watch is Facebook’s answer to Alphabet Inc’s (NASDAQ:GOOG,NASDAQ:GOOGL) YouTube and could eventually become a worthy competitor in the streaming space.
There’s a lot to like about the fact that Facebook is throwing its hat into the video streaming space. But the biggest reason investors should be keeping an eye on Watch is the platform’s advertising potential.
Digital advertising has exploded over the past decade. But it’s important to note that online advertising sales haven’t taken away from the billions of dollars that companies spend on TV ads. That means that as people step away from traditional cable and opt to stream instead, a portion of TV ad spend will be up for grabs.
FB Stock and the Power of Watch
Taking on the likes of YouTube, or even Netflix, Inc. (NASDAQ:NFLX), is a tall order but one that Facebook has the potential to fill.
Facebook’s massive user database and dominance in social media will give the firm a leg up when it comes to getting people interested in content. FB has hoards of data that tells it what people like and dislike. And it’s able to create channels based on what users’ friends are watching. Compare that to Netflix, whose algorithms and content recommendations really only kick in once a viewer has watched quite a bit of programming. Even then the service can only make predictions based on what other people watching the same show liked — rather than using years of data on users’ likes and dislikes as Facebook can.
FB Stock’s Shareholder Value
If you believe in Facebook’s growth potential, then the reasons to buy FB stock are about to get even sweeter.
Fellow InvestorPlace contributor Luke Lango pointed out that Facebook is trading at a 75% premium to its growth prospects. It might shock you to hear that the S&P 500 is trading at a 95% premium to its growth prospects, making FB stock look like a pretty great bargain.
Not only that, but Facebook has the potential to save a huge chunk of cash in the coming year if Trump’s tax plan is finalized. FB is seen saving $1.56 billion under the new tax code — money that the firm could use to further its investments in safety and security, or to reward shareholders.
Bottom Line on FB Stock
FB stock is a solid long-term bet that offers impressive growth for a bargain price. The naysayers who are predicting a turbulent 2018 are creating a great entry point for investors who are looking to round out their portfolios before the new year.
As of this writing, Laura Hoy was long NFLX and FB.
