There are quite a few tech companies with dominant positions in their operating markets, but lately, investors in these tech giants may not be in the best mood.
For instance, while the broad market has climbed to new highs, almost all the FAANG stocks—Facebook, Inc. (NASDAQ:FB), Amazon.com, Inc. (NASDAQ:AMZN), Apple Inc (NASDAQ:AAPL), Netflix Inc (NASDAQ:NFLX), and Google, also known as Alphabet Inc (NASDAQ:GOOG)—have been in a consolidation phase for more than six months. The only exception is Google.
But don’t cross these companies off your list, especially not Facebook.
You see, Facebook, Inc. currently relies on four main products: “Facebook,” “Instagram,” “Messenger,” and “WhatsApp.” The company makes most of its money from advertising. Last year, advertising revenue accounted for 98% of Facebook’s total top line. (Source: “Facebook Reports Fourth Quarter and Full Year 2020 Results,” Facebook, Inc., January 27, 2021.)
Notably, the company has been quite successful at expanding through acquisitions. Instagram and WhatsApp were once standalone companies, and they grew into huge platforms after being acquired by Facebook.
However, Facebook, Inc.’s ambition is not just about social networks and messaging apps.
Back in 2013, the company—together with HTC Corp—released a smartphone that used Facebook software and HTC hardware. But that project was not exactly successful. Sales weren’t good, and the device was quickly discontinued.
In 2014, Facebook, Inc. acquired Oculus VR, LLC, a company that produces virtual reality (VR) headsets. While the VR industry is still at an early stage, Oculus has become one of the major players—especially in gaming VR.
Last year, Facebook announced that it had been working with EssilorLuxottica SA—the company behind “Ray-Ban” sunglasses—to develop smart glasses. (Source: “Facebook, EssilorLuxottica in Multiyear Deal for Next Gen Smart Glasses,” RTT News, September 17, 2020.)
Then, in February of this year, it was reported that Facebook, Inc. was building a smartwatch. The device, which is said to be “Android”-based, would have messaging, health, and fitness features. (Source: “Facebook Plans Smartwatch With Focus on Messaging, Health,” The Information, February 12, 2021.)
The smartwatch industry, however, is already filled with major players. Apple is the most dominant one, with about half the shipment revenue share. (Source: “Global Smartwatch Market Revenue up 20% in H1 2020, Led by Apple, Garmin & Huawei,” Counterpoint Technology Market Research, August 20, 2020.)
Huawei Technologies Co., Ltd., Samsung Electronics Co Ltd, Fitbit, Inc. (now owned by Alphabet), and Garmin Ltd. (NASDAQ:GRMN) are also competitors in the smartwatch field.
In other words, this would be a challenging project for a new entrant.
That said, Facebook, Inc. has billions of users across its social network and messaging platforms. Even if the company cracks just a small percentage of the smartwatch market, it could lead to new ways for people to use its family of apps.
For the most part, current users of Facebook, Instagram, Messenger, and WhatsApp have to take their smartphones out of their pockets to access these apps. If they get accustomed to using these apps from Facebook’s own smartwatch, it could take the company’s user engagement to a new level.
Besides, one popular product or service is not good enough in the tech world in this day and age. Facebook is already the most dominant player in social media networks. If the company can successfully build a user base for its hardware devices, it could strengthen its ecosystem and widen its economic moat.
Facebook, Inc. (NASDAQ:FB) Stock Chart
Chart courtesy of StockCharts.com
At the time of this writing, shares of Facebook, Inc. are basically trading at the same level as they were at the end of last August. Another thing worth noting is that, among the FAANG stocks, Facebook currently has the lowest price-to-earnings ratio.
In order for Facebook stock to break out of its current trading range, it will likely need some fundamental catalysts. New product launches—or a solid earnings report—could serve as the fuel to take FB stock to new heights.