Just last week, Facebook Inc (NASDAQ:FB) and Paypal Holdings Inc (NASDAQ:PYPL) announced that PayPal users will now be able to send and receive person-to-person (P2P) payments through Messenger. While it’s pretty big news, FB stock shrugged it off.
For FB, it puts Messenger on the right trajectory towards monetizing its 1.3 billion active user base. For PYPL, it extends its mega-popular P2P payment services to a huge audience.
The shrug-off is an opportunity. FB stock has traded largely sideways since its last earnings report in late July, which was otherwise quite good. The next earnings release, due Nov. 1, will also likely be quite good considering Instagram’s continuing ad dominance over Snap Inc (NYSE:SNAP). With longer-running catalysts such as Messenger’s monetization starting to kick-in, now looks like the perfect time to buy FB stock.
Facebook Messenger Has Huge Potential
Commerce is changing dramatically. The way we pay for things and services (and even pay each other) is rapidly evolving thanks to smartphones. Just this week, the New York City transit system said it will move towards replacing its MetroCard with contactless payments via platforms such as Apple Pay.
The story lines have been known for a while. Brick-and-mortar shopping is in a secular decline, while e-commerce is in a secular rise. The biggest driver of that secular growth is mobile commerce, where consumers are transacting straight from their phones. A big part of mobile commerce is social commerce. This entails both buying and selling straight from social feeds (e.g. Instagram) as well as creating your own social feed of P2P transactions (e.g. Venmo).
Clearly, a big driver of millennials’ adoption of mobile commerce is the social aspect. They want to feel connected while making a transaction through a smartphone (which is an otherwise very solitary thing to do).
What better way to feel connected than through a messaging platform? The writing is on the wall for conversational commerce to be the next big wave of mobile commerce. You’ll pay people through chat forums and you’ll order from chat-bots. The reason Messenger is particularly levered to be to the go-to-platform for this is because of its unparalleled size (1.3 billion users).
Messenger has already plunged into this world of conversational commerce with chat-bots and chat-suggested Fandango movie ticketing. The platform also already has P2P payments. PayPal integration is just another step in the right direction for Messenger transforming into a major player in the rapidly growing mobile commerce space.
How does Facebook make a bunch a money from this transformation? By turning Messenger into a conversational commerce marketplace. With a whole bunch of dollars flowing through the platform, Messenger will be free to take a small cut. With Messenger’s 1.3 billion users, that small cut could mean big dollars.
Bottom Line on FB Stock
FB stock is still dirt cheap at just 32.3-times forward earnings. You won’t find that low of a multiple anywhere else in the high-growth tech sector, with the exception of Alphabet Inc (NASDAQ:GOOGL).
NVIDIA Corporation (NASDAQ:NVDA) trades at 49-times forward earnings. Advanced Micro Devices, Inc. (NASDAQ:AMD) is at 140-times forward earnings. Netflix, Inc. (NASDAQ:NFLX) trades at 150-times. And the multiple for Amazon.com, Inc. (NASDAQ:AMZN) is more than 250-times.
Consequently, if you’re looking for risk-averse exposure to what is commonly perceived as an over-heated hyper-growth tech sector, FB stock is your answer.
Plus, the current set-up is particularly favorable. Facebook stock has traded sideways ahead of what will likely be a blowout report and long-running tailwinds such as Messenger monetization are just starting to kick in.
As of this writing, Luke Lango was long FB, GOOG, AMZN, NFLX, and NVDA.
