More Upside for FB Stock?
What do you think of when you hear the name Facebook Inc (NASDAQ:FB)? Most people think of the Facebook web site or mobile app, but the company is so much more than that. FB stock is, quite simply, one of the best technology plays on the market.
There are only a handful of tech companies in the same weight class as Facebook. Alphabet Inc, Apple Inc., Amazon.com, Inc., and Microsoft Corporation: that’s all of them. I can’t think of any other firm with the intellectual or cash resources to fight this corporate giant.
As the company pushes into newer territory—like virtual reality (VR), digital payments, and content distribution—it’s important to remember what its record of success looks like.
Facebook has repeatedly outperformed its competitors by tapping into emerging technology trends. Remember Instagram? Remember WhatsApp? At the time, most people thought Facebook had grossly overpaid for both those companies.
But no one in Silicon Valley or on Wall Street would say that today. It’s clear that Facebook’s CEO, Mark Zuckerberg, has made the right decisions all along, which is remarkable for someone his age. The kid is truly a genius.
Here are three ways in which Zuckerberg plans to keep Facebook as one of the biggest winners on the stock market:
1. Messenger-Based Advertising
Facebook currently owns two instant messaging apps: “WhatsApp” and “Messenger.” Combined, these services have almost two billion monthly active users (MAUs), forming one of the largest markets any company has ever seen. Most advertisers would probably sacrifice an arm and a leg for access to that kind of audience, which is how Facebook intends to make money from it.
The company has unveiled a bunch of tools for advertisers to build “bots.” Users will be able to message these “bots” and have conversations with them like they’re talking to a salesperson. For instance, Uber is currently building a “bot” that would allow you to request a ride straight from Messenger.
Think of the messaging apps as a giant toll highway. Everyone wants to get to the audience, so they’re willing to pay the toll to Facebook. Meanwhile, the users of the messaging apps aren’t charged a dime. It’s a perfect strategy that has worked time and again for Facebook. (Source: “Meet the messaging apps trying to take on the likes of Facebook and WhatsApp,” CNBC, May 27, 2016.)
Facebook has more than tripled its revenue in the last four years based on mobile advertising. That growth came from the exact same principle of charging a toll for access to Facebook’s huge mobile audience. It is a necessary cost for advertising agencies because they have to go where the people are. Don’t be surprised if Facebook’s revenue surges again—this time on the strength of its messaging ads.
2. Digital Payments
If advertisers will be selling stuff on Messenger, the next step is for customers to be able to buy things on the spot. Luckily, Mark Zuckerberg and the Facebook team are way ahead of me on this. They already developed a payments system that can be used on both the Facebook app and the company’s messaging apps. It’s like an in-house version of PayPal.
Just like PayPal, Facebook could force merchants to pay a small fee for the ease of using their digital payments method. It would be another cash cow for the company.
3. Virtual Reality
This is possibly the highest-profile project at Facebook. The company’s $2.0-billion acquisition of Oculus VR pretty much started the trend of virtual reality.
One by one, Facebook’s competitors started copying its move. Google launched its own VR headgear, as did HTC and Sony.
But there’s one thing Facebook’s competitors don’t have: Palmer Lucky. He is the genius who made it all possible, the guy who actually built Oculus from the ground up. He decided to work down the hall from Mark Zuckerberg.
Now he’s turned the Oculus Rift into the Rolls Royce of virtual reality. It is built for the most hard-core video gaming fans. These are the folks who bought it the first day pre-orders became available. But just to make sure Facebook tapped into all corners of the market, Palmer also built a less expensive version of Oculus for Samsung. That’s right, the Samsung “Gear VR” is actually built by Facebook! (Source: “Facebook’s Oculus adds new social games and video features to Samsung Gear VR,” VentureBeat, March 9, 2016.)
In other words, Facebook is making sure it has several different streams of income. It has laid phenomenal groundwork in each of these three emerging technologies and I expect all three to drive huge gains in FB stock over the coming years.