Last month marked 15 years since Facebook (NASDAQ:FB) founder Mark Zuckerberg debuted his social network from his Harvard dorm room. From his initial focus on the college market, he definitely saw much grander opportunities.
While growth was superfast, Zuckerberg still faced many existential challenges. Just some included fighting tough rivals like MySpace as well as the making transition from the desktop to mobile devices. But along they way, Zuckerberg stuck to his core message: to make the world more open and connected.
And yes, the strategy has definitely paid off in a big way. Currently, Facebook stock has a market value of $491 billion — making the company one of the world’s most valuable.
Yet it seems that things may be changing again, this time setting up Zuckerberg’s most important moment.
Part of this is due to the backlash to privacy breaches. The most notable, of course, was the Cambridge Analytica fiasco, which led to the release of personal information on 87 million users. That showed just how lax Facebook had become over the years.
But there is another important challenge, which could weigh on FB stock: The social media market is getting more mature. And yes, this will mean it will get tougher to gin up growth.
Push for Privacy
To deal with all this, Facebook is changing its strategy — and ironically, it’s about being more private. This is certainly risky since it’s an approach that’s in stark contrast to the company’s stated mission. But then again, in order for Facebook to continue to thrive, I think there is little choice for the social network.
In early March, Zuckerberg penned a long blog post titled “A Privacy-Focused Vision for Social Networking.” In it, he noted that the future of social media will be about platforms that involve “private, encrypted services where people can be confident [that] what they say to each other stays secure and their messages and content won’t stick around forever.”
Granted, this is not so eloquent or inspiring. But I think Zuckerberg is spot-on with strategy — and his new focus could be key to Facebook stock growth over the long haul. The short term, though, could be dicey. Keep in mind that nearly all FB revenue comes from advertising. In other words, sophisticated user targeting could be tough as the data is encrypted and many of the messages are ephemeral.
Another challenge is the Facebook brand. Will users buy in to the new message? Will they believe it?
Well, that’s far from clear.
Significant Revenue Potential
Despite the privacy mishaps, there appears to be little impact on the user base. What’s more, the revenue potential for a private Facebook is significant. Note that we have already seen this with WeChat, owned by Tencent (OTCMKTS:TCEHY). The Chinese platform has become the go-to app for making a myriad of transactions — both for virtual items and even within brick-and-mortar stores. The result is that WeChat has quickly morphed into a massive ecosystem with powerful barriers to entry. In fact, China has rapidly become a cashless society because of this.
I suspect Zuckerberg is thinking the same thing could be the case with FB. More importantly, the company has the apps for this — like Messenger and WhatsApp — and the engineering resources to pull it off.
Bottom Line on FB Stock
The shift towards a more private Facebook — and its impact on the FB stock price — will definitely take time. It will also be tough to do in the U.S., as Apple’s (NASDAQ:AAPL) iMessage platform holds a dominant position in the category. But again, Zuckerberg has a knack for finding growth opportunities. Consider his success with Instagram versus Snap (NYSE:SNAP).
But I do think Zuckerberg needs to strike a transformative acquisition to push his new vision. Perhaps one would be to acquire PayPal (NASDAQ:PYPL). It would not only get a full payments platform, with a large massive user base, but also the popular Venmo peer-to-peer app.
Regardless, Zuckerberg’s blog post should really be encouraging for holders of Facebook stock. It shows that he understands that, to remain on top, there will need to be disruption with the current way of doing things.
Tom Taulli is an Enrolled Agent and also operates PathwayTax.com, which is a tax advisory and preparation firm. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.