What Makes Facebook Stock Great?
To the average consumer, Facebook Inc (NASDAQ:FB) is just a social media app that connects friends and family. But to investors, FB stock is a way of getting rich on the future of technology and media. It is a ticket to enormous returns.
Facebook stock has quadrupled in the short time that retail investors have had access to it, and those gains are just the tip of the iceberg. This company hasn’t even broken a sweat yet.
I look at Facebook and see a media technology giant like nothing we’ve ever witnessed before. CEO Mark Zuckerberg knows that advertisers and publishing companies need access to his 1.7 billion subscribers; it’s the only way they can stay alive.
Knowing this gives Zuckerberg (and consequently, Facebook) a lot of power. They can charge a hefty price for letting advertisers and publishers onto their toll highway. That being said, it all comes back to the power of Facebook’s wide base of subscribers. Without that foundation, FB stock would be far less stable.
Our job as investors is to investigate whether Facebook can continue to grow and leverage these subscribers into greater profits for Facebook stockholders. Lucky for you, I’ve already done the research. Here’s what I found.
No. 1 Reason I’m Bullish on FB Stock: Facebook Video
The short version: yes, I think Facebook’s subscriber base will keep growing. For one thing, the company has added hugely popular features like video and instant articles to foster user engagement. This has always been the company’s strategy.
Zuckerberg said as much while in Nigeria last week. Someone asked him what marketing strategy Facebook used to gain popularity, and Zuckerberg’s answer offers a valuable insight into what drives FB stock.
“What we’ve always found is that getting people who use your products and enjoy it to evangelize it to their friends is by far the most effective way to market your brand,” he said.
Zuckerberg’s point is simple: make customers happy and they do the heavy lifting for you. FB stock will continue to benefit from user engagement as long as customers like what the service is offering them. “Facebook Video” has been incredibly important for that strategy.
Customers love video, not to mention that video ads are more expensive than text ones. As a greater portion of Facebook’s advertising revenues come from video ads, its profit margins could soar. It’s painfully obvious that this could send FB stock surging.
No. 2 Reason I’m Bullish on FB Stock: Subsidiaries
Some people are worried about Facebook stock plummeting as customers migrate to newer social media apps. Let’s think about that for a second; there was one photo-sharing app that analysts worried could damage FB stock: “Instagram.”
But Facebook took care of that threat years ago. It purchased Instagram for $1.0 billion in 2012, in effect turning a weakness into a strength. (Source: “Insta-Rich: $1 Billion for Instagram,” The Wall Street Journal, April 10, 2012.)
Since then, Instagram has eclipsed Twitter Inc (NYSE:TWTR) in terms of subscribers, climbing to nearly 500.0 million users as of June 2016. Even if new social media were going to cannibalize some traffic, Facebook stock still wins in the end.
The same is true on the messaging side of the platform. Facebook developed “Messenger,” which now has 1.0 billion subscribers, but it also owns “Whatsapp.” It is now starting to monetize both of these apps, and they could become cash cows very soon.
According to a ton of analysts, including myself, these apps are going to be huge for Facebook stock.
No. 3 Reason I’m Bullish on FB Stock: Internet.org
The only social media service that poses a slight threat is “Snapchat.” Teenagers are obsessed with this app, but it doesn’t matter that they spend more time on competing services like Snapchat, because Facebook has an ace up its sleeve …
It’s bringing new users onto the Internet.
As part of Mark Zuckerberg’s philanthropic efforts, he developed an organisation called Internet.org. This nonprofit aims to bring Internet to the digitally dark places of the world and, in the process, funnel a ton of new subscribers into Facebook services.
Here’s how it works: Internet.org creates a “Free Basics” program which gives people free access to some things online. They can use “Wikipedia” and a few other web sites, one of which is Facebook. Considering there are still 4.0 billion people in the world without Internet access, this represents a gigantic growth opportunity.
Facebook is going to add these subscribers, which in turn raises the amount of money it can charge advertisers and publishing houses. It is the perfect fuel for FB stock.
And all these are just on the software side. Facebook is also getting into the hardware game in a big way. In fact, it has developed a device that could be bigger than the “iPhone.” Just imagine the fortunes that will create. If you’re interested in learning about this new device, click here for our Free Exclusive Report.