Although it has a long way to go, Facebook (NASDAQ:FB) just enjoyed its best seven-day period in recent memory. After suffering an awful, schizophrenic year in 2018, Facebook stock received a much-needed boost: the social-media firm turned in a strong result for its fourth quarter 2018 earnings report.
Unlike prior reports, Wall Street viewed this latest disclosure as a decisive victory. Against a consensus earnings per share target of $2.19, FB delivered $2.38, or a 9% positive surprise. On the revenue side, analysts anticipated $16.39 billion. Here again, the company came out on top, ringing up $16.91 billion.
Moreover, the associated user metrics aligned with the financial enthusiasm. Against the year-ago level, monthly active users jumped 1.8% to 2.32 billion, meeting consensus estimates. In addition, Facebook noted that its average revenue per user measured up to $7.37, exceeding forecasts calling for $7.11. After all this, FB stock jumped nearly 11% against the prior day’s session.
Not only that, shares continued to maintain the gap-up momentum. After slipping a little midway last week, Facebook stock ended Friday’s session on a high. Heading into the weekend, the company had more important news to share: it bought out GrokStyle, an artificial-intelligence app that allows users to buy desired furniture.
Here’s how GrokStyle works: suppose you’re at a trendy restaurant or hotel. You spot a piece of furniture that you think would look great in your living room. Rather than browse through endless options, you let GrokStyle do the work for you. Take a picture of the desired piece, and its innovative AI platform scans through a litany of options, providing you with identical or similar-looking matches.
Upon the app’s introduction, it impressed many people, including Ikea’s leadership team. But how will a furniture app move the needle for FB stock?
GrokStyle Represents the Next Phase for Facebook Stock
To the casual observer, GrokStyle doesn’t appear intuitively beneficial for the king of social media. However, FB has invested significantly in similar platforms, as evidenced by its Facebook AI Research lab, or FAIR.
For one thing, the company’s foray into a seemingly disparate venture aligns with broader tech industry trends. A great example is rival Alphabet (NASDAQ:GOOG,NASDAQ:GOOGL). Although Alphabet banks heavily on the Google search engine , it has moved aggressively into new areas such as ride sharing.
Of course, the twist is that Alphabet leverages its tech know-how to bring distinction to its services. For ride-sharing Waymo, the platform uses AI to replace the human driver. Facebook has a similar opportunity with GrokStyle, which will likely boost FB stock longer term.
In isolation, GrokStyle represents an impressive platform. However, it would have to seek out new users through a marketing campaign. But under Facebook, the retail app has viable, proven synergies. Obviously, the social-media firm features a massive audience which they can market at will. Also, FB users themselves are likely to share their positive experiences with others.
This is where Facebook is taking a page out of Alphabet’s playbook. Both are utilizing their core strengths to drive distinction in otherwise familiar platforms.
Demographic Trends Also Favor GrokStyle acquisition
Unquestionably, FB is the world’s greatest social-media network. You can argue that Twitter (NYSE:TWTR) or Snap (NYSE:SNAP) is sexier, but quantifiably, they both feature far lower user counts. As a result, if you want to generate excitement over a product or service, you do it through Facebook.
But it’s not just the quantity of users that I’m focused on, but rather, the quality. As I’ve mentioned a few times over the years, social-media rivals like Snapchat skew exclusively towards the young demographic. That’s not necessarily a problem. As we’re reminded constantly, youth is a highly-desired commodity.
The problem for Snapchat is that statistically, it loses its young audience to Facebook as they grow older. The app’s central demographic strength centers on the 18 to 24 years age group. From there, the age-bracket distribution falls off a cliff.
In contrast, Facebook’s money-maker is the 25 to 34 years group. Just as importantly, the company features a flatter demographic curve. Even senior citizens represent themselves well on the network, which was always a strong point for FB stock.
Why this is particularly important for GrokStyle is that furniture represents a high priority for all age groups, except for perhaps the super-young (ie. Snapchat users). Moreover, older folks have both the money and incentive to use GrokStyle. I believe these demographic synergies will eventually boost average revenues per user, as well as valuations for Facebook stock.
FB Stock Is an Effective AI investment
While I believe investors have plenty of reasons to love Facebook’s GrokStyle acquisition, it’s not without criticism. Sometimes, tech firms innovate for innovation’s sake, but lack the practical (ie. profitable) application. And as our own Vince Martin explained, FB stock has suffered from multiple controversies.
But I can’t help but play the contrarian here: don’t the controversies reflect how effective Facebook stock is as an AI investment?
Please read this carefully: I’m not justifying any of the horrible privacy breaches that the company imposed on its users. Rather, what I’m saying is that associated parties to the controversy had incentives to perform unethical actions.
In the Cambridge Analytica fiasco, the politically-motivated research firm believed Facebook’s user data could help Donald Trump’s presidential campaign. As for the privacy breaches involving Microsoft (NASDAQ:MSFT), Amazon.com (NASDAQ:AMZN), and Netflix (NASDAQ:NFLX), these names obviously value FB’s data-mining riches. Otherwise, why incur an ugly PR crisis?
Of course, data mining and AI are different disciplines. However, they both scour through massive data to produce usable, practical information. Where most AI systems fall apart is in the information delivery department. For example, digital personal assistants have failed to live up to consumer expectations. So far, the available technology doesn’t allow them to answer complicated inquiries requiring cross-referencing of multiple data points.
The difference for Facebook stock is that the underlying organization largely focuses on what works. Its recent acquisition demonstrates that management’s drive for innovation isn’t getting in the way of growth and profitability.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.