Social media giant, Facebook, Inc. (NASDAQ:FB) is rallying to all-time highs on Thursday. The company posted stellar third-quarter earnings and top-line double-digit growth on key parameters a day earlier. FB stockholders are nervous of whether the company will hold up to its guidance going forward or simply turn out to be a fad as Facebook bears have long cited it to be. Here’s why I believe bears are wrong and why FB stock could very well double as soon as next year.
This Could Be Huge for Facebook Stockholders
The biggest question mark on Facebook stock, when it first went public, was the company’s ability to monetize its monthly active users (MAUs). Facebook lived up to its promise and has since then been delivering double-digit growth in ad revenue. FB bears often overlook the fact that the company’s ad-related revenue is still in its nascent phase.
Facebook currently has about 2.5 million advertisers on the Facebook platform. But the total active small and medium-sized businesses (SMBs) on Facebook stand at a whopping 45 million. Even if half of those were to convert, there is a massive 44% conversion scope.
Now, combine this with the video factor that is already proving a boon to the company. The video feature was launched earlier in the year and has already reached 500 million users. Now, on the other end of the spectrum, 1.5 million SMBs have begun using videos for advertising this quarter. (Source: Facebook Third Quarter Earnings Call, SeekingAlpha, November 4, 2015.) The interest in video ads is already beginning to build momentum and could become the next big puller of ad revenue for Facebook. Facebook has already introduced TRP (target rating point) for advertisers for its video feature—a rating system used by TV advertisers to analyze traffic—and could make this platform the next big advertising alternative to the TV medium.
Facebook’s cheaper advertising model, offering a wider target market, is the perfect go-to medium for marketers. Over one billion people are currently actively using the Facebook platform. That’s about 14% of the total world population. That’s a big number. The social media giant is not restricted to any region or any particular area; it’s everywhere. Even in China where the marketers are using the platform to reach out to customers outside of China, since the platform is banned for users domestically.
The company has been consistently pulling in more and more users every quarter, not just on its namesake social media platform, but also on its smaller but rapidly-expanding acquisitions—Instagram and WhatsApp. Instagram’s MAUs stood at 900 million by the latest quarter while WhatsApp’s stood at 700 million. Both platforms are also heading towards the one billion figure, remaining relatively untapped in terms of advertising. The company still has a wide opportunity to scale its ad revenue here.
The fact that Facebook now holds two of the biggest and fastest-growing social media platforms and is heading down the path to create the biggest user connectivity ecosystem inevitably makes it an advertiser’s first choice.
The Bottom Line on FB Stock
Unsurprisingly, Facebook has turned out to be one of the few U.S. corporations this quarter which have been able to beat on both revenue and earnings and guided higher for the next quarter. The company’s attractive double-digit growth has confirmed its undisputed dominance in the social media industry. Facebook is undoubtedly one of the best-managed companies under Zuckerberg’s leadership.
Bottom line, I’m not betting against Facebook stock in 2016.