When it comes to Facebook (NASDAQ:FB) stock, we all know the bull thesis. The internet giant owns four of the most popular social media and communication apps in the world, only two of which are monetized and all four of which are addictive, sticky and resilient to outside pressures (None of Facebook’s properties lost a material number of users in 2018 amid multiple data privacy concerns).
Over the next several years, Facebook will only grow its ecosystem of digital users, and more broadly monetize those users by fully populating all of its platforms with ads. This dynamic will support 20%-plus revenue and profit growth for a lot longer. All that growth should ultimately push FB stock higher in the long run.
That bull thesis sounds pretty good. Yet, everyone knows it, and Facebook stock has remained stubbornly below $200 for a long time. In other words, the market is saying that they want something more than this core bull thesis in order to push FB stock higher.
Fortunately for bulls, I think that this “something more” is coming soon in the form of three big tailwinds: influencer marketing, e-commerce, and streaming TV. All three of these boosts should improve investor sentiment meaningfully over the next 12 months. As such, I also see Facebook stock soaring above $200 within the next 12 months.
Facebook is Going to Kill Influencer Marketing
Influencer marketing is the hottest fad in the marketing world. Long story short, Instagram has birthed multiple influencers, who have built huge social media followings and now leverage those huge followings to become “promoters” for brands and products.
Hypothetical example: Tom runs a shoe company. Jason is an Instagram star who has 5 million followers. Tom pays Jason $10,000 to promote Tom’s shoes to Jason’s 5 million followers. Some of those 5 million followers end up really liking those shoes. Tom wins customers. Jason wins $10,000. Win-win.
Facebook doesn’t like this influencer marketing world. Why? Because influencer marketing is essentially a collection of ad transactions happening because of the Facebook ecosystem, and from which Facebook doesn’t get any cut. In the above example, Tom could’ve paid Instagram $10,000 to run an ad for his shoes. Instead, he paid Jason $10,000. That’s an opportunity lost for Facebook.
Facebook is responding to this by eliminating followers and likes on posts, under the idea that they are doing so to promote authenticity. Sure, that will happen. But, it’s not why Facebook is doing this. Instead, Facebook is doing this because if you remove followers and likes, you have no idea who is an influencer and who isn’t — everyone is the same from an ostensible influence perspective.
In a world where everyone is the same from an ostensible influence perspective, the influencer market dies. Going to back to Tom, he will have no idea that Jason has 5 million followers. So, instead of paying Jason $10,000, he will pay Instagram $10,000 to run an ad. That’s an opportunity gain for Facebook.
Consequently, over the next few quarters to years, the $6 billion-plus in the influencer marketing world will turn into $6 billion-plus in Facebook ad dollars.
Instagram is Going to Dominate E-Commerce
Facebook is in the first few innings of transforming into an e-commerce giant, and this starts with Instagram Shopping.
The logic here is pretty simple. Instagram is already a collection of 1 billion people sharing photos of various products, experiences, and places, meaning that it’s already a place where 1 billion people are exposed to various products, experiences, and places. Often, what happens is that an Instagram user will see a picture of someone wearing cool shoes in a photo. Those cool shoes will be tagged to the company that makes the shoes. The user will click that tag, browse through the company’s profile, and then go to the company’s ecommerce website — where that user may end up buying a pair of shoes.
In other words, Instagram is often the first filter in the e-commerce process. If it already controls the first filter, why can’t it control the whole process?
It can, and it will. Instagram Shopping is teaming up with Shopify (NYSE:SHOP) to make Instagram “shoppable”. Because social commerce is the future of commerce — and because convenience always wins out — I can easily see a big chunk of e-commerce transactions happening on Instagram by 2025. That will result in billions of dollars in commission fees for Facebook.
This is all starting today, and as early initiatives gain traction, investors will grow excited about Facebook’s commerce opportunity … and buy FB stock.
Facebook has Big Potential in Streaming
Facebook’s potential in the streaming market is often missed by Wall Street. But, investors may wake up to this company’s streaming potential in 2020.
Why? A new slate of Facebook Portal products are geared toward the streaming TV market. That is, Facebook’s latest iteration of Portal can be connected to TVs, and the rumor is that they will posses the ability to stream content from Netflix (NASDAQ:NFLX) and Disney (NYSE:DIS).
In other words, Facebook’s Portal device is becoming much more than a video-calling device. It’s essentially trying to become a Roku (NASDAQ:ROKU) streaming player.
Will that full transformation happen? Tough to say. But, Facebook is moving in that direction, and as they continue to do so, investor sentiment underlying the stock should improve, providing support for further upside in shares.
Bottom Line on FB Stock
Facebook stock is a winning stock, simply on the merits that this is a 20%-plus revenue and profit growth company trading at roughly 20x forward earnings. That’s a lot of bang, for not a lot of buck.
But, the market likes to sleep on FB stock. Thus, the stock will need something extra than 20/20 growth to power it higher. That something extra is coming soon, in the form of big tailwinds in the influencer marketing, e-commerce, and streaming TV markets. As these tailwinds gain momentum in 2020, FB stock should fly higher.
As of this writing, Luke Lango was long FB, SHOP, NFLX, and DIS.
