Facebook Inc’s (NASDAQ:FB) dominance in the social media business needs little introduction. Moreover, even with a userbase of 1.59 billion, FB stock investors still believe that growth could continue well into the future. Trading at $109.79 on Monday morning, Facebook stock has a price-to-earnings multiple of almost 85X. Does that make the company a bit expensive?
Well, if you take a look at what the company might do next, the answer is no.
Could O2O Be the Next Propeller for Facebook Stock?
In case you haven’t noticed, Facebook is much more than social media these days. It has two of the world’s most popular messaging apps—“Messenger” and “WhatsApp”—and is also moving into the virtual reality (VR) industry with the “Oculus Rift” headset. Needless to say, these could be growth engines with long-lasting power.
There is one segment that Facebook seems to be interested in, but still hasn’t fully tapped into—online to offline (O2O).
To put it simply, O2O is a business model that draws potential customers from online channels to physical stores. Business owners can use an O2O platform for customer acquisition. Because there are often promotions by booking through an O2O platform, consumers have an incentive to use it as well.
Facebook is yet to officially enter the O2O industry. But based on what the company has been doing lately, it could be moving in that direction.
Today, many local businesses have a Facebook page. Many of them also use the company’s Messenger app to communicate with customers on a one-on-one basis. The company also rolled out payment service on the messaging app last year. The app has huge potential in O2O commerce. By the end of 2015, there were more than 800 million monthly active users (MAUs) on Messenger. (Source: “Here’s to 2016 with Messenger,” Facebook Inc, January 7, 2016.)
Speaking of messaging apps, one cannot ignore WhatsApp, which was bought by Facebook back in 2014. WhatsApp is the most popular messaging app in the world, with over one billion MAUs. The best part of this app is that Facebook has clearly expressed its O2O intentions with it. (Source: “One Billion,” WhatsApp Blog, February 1, 2016.)
Earlier this year, the company announced that it would stop charging the $0.99 annual fee on WhatsApp. But instead of just running ads, WhatsApp’s monetization strategy is to let users communicate with businesses and organizations that they want to hear from. That’s about as clear as it gets when it comes to expressing Facebook’s O2O ambitions. (Source: “Making WhatsApp Free and More Useful,” WhatsApp Blog, January 18, 2016.)
Now, you might think that Facebook is too late to enter the industry since there are already companies connecting local businesses to consumers. Both restaurant review site Yelp Inc (NYSE:YELP) and group buying site Groupon Inc (NASDAQ:GRPN) can be considered O2O companies. Still, that doesn’t mean Facebook can’t succeed.
You see, Facebook’s appeal is that users are connected to their friends on its suite of apps. When all your friends are talking about a restaurant they like, you are probably going to try it too. The power of recommendation is stronger from people you know than from a review site. And let’s not forget Facebook’s giant userbase, which absolutely dwarfs that of Yelp and Groupon.
The Bottom Line on Facebook Stock
Of course, building an O2O platform would be a long-term process for Facebook. But if you want to get a piece of the action from the company’s next O2O boom, you better act quickly. Once the word is out, Facebook stock probably won’t be this cheap.