Is There Any Juice Left in FB Stock?
Today, most would agree that Facebook Inc (NASDAQ:FB) stock is no longer a startup.
With a market cap of over $300 billion and more than $5.0 billion in quarterly revenue, Facebook has already become a full-fledged social media giant. The big question now: is there any upside left in Facebook stock? Does this company have enough juice left to send shares to $250.00?
For the past several years in the tech sector, few companies offered gains as sizable and stable as Facebook stock did. Since its initial public offering (IPO) back in 2012, FB stock has skyrocketed 198%.
The catch is that for a stock to have such a steady climb, it also needs a growing business, which has been the case with Facebook stock. The platform’s monthly active users (MAUs) were already at a gigantic 955 million in its first earnings report after the IPO, but have grown to a more incredible 1.65 billion by the first quarter of 2016. (Source: “Facebook Reports First Quarter 2016 Results and Announces Proposal for New Class of Stock,” Facebook Inc, April 27, 2016.)
Things dramatically improved on the monetizing front as well. Facebook’s revenue grew from $1.18 billion in its first earnings report post-IPO to $5.38 billion in its most recent report. The company also went from making a loss to having $2.23 billion in adjusted quarterly net income during this period.
But since its business is already established, where can Facebook find further growth?
Well, how about creating multiple “Facebooks” within Facebook?
At first glance, it might not seem that possible. But if you take a closer look, you’d see that the company is already starting to do that.
Facebook’s main social network platform already has 1.65 billion MAUs, which is about half of the world’s population with Internet access. This kind of userbase brought a huge opportunity in advertising. In the first quarter, advertising accounted for 96.6% of the company’s revenue.
But since the main app’s userbase is already huge, you might think that future growth would be limited. Not at Facebook, though. For the future, the company is focusing on not just the Facebook app, but on an ecosystem of apps.
Through its acquisitions in recent years, Facebook has gotten hold of two other top-ranking apps—“WhatsApp” and “Instagram.” Although the company paid billions of dollars to get them, these two acquisitions should pay off handsomely in the years to come.
On June 21, Instagram announced that its MAUs have reached 500 million around the world. Moreover, more than 300 million of its users use the app every single day. (Source: “Instagram Today: 500 Million Windows to the World,” Instagram Official Blog, June 21, 2016.)
WhatsApp, on the other hand, is even more impressive. By February 2016, it reached a whopping one billion MAUs. It’s by far the most widely used messaging app in the world. (Source: “One Billion,” WhatsApp Official Blog, February 1, 2016.)
And take a guess which company owns the second-most popular messaging app in the world? Yep, it’s also Facebook. Since being spun off as a standalone messaging app, Facebook’s “Messenger” has amassed 900 million MAUs. (Source: “Most Popular Global Mobile Messenger Apps as of April 2016, Based on Number of Monthly Active Users,” Statista, last accessed June 21, 2016.)
What this means for Facebook is huge advertising potential. For instance, Instagram started running advertising last September, and gained over 200,000 advertisers by this February. (Source: “200,000 Advertisers on Instagram,” Instagram Official Blog, February 24, 2016.)
For Messenger, although it’s a messaging app, it has something called “Chat Feed.” The feature has the potential to become the equivalent of the newsfeed feature in Facebook’s main app. This means the company can roll out native advertising on Messenger, which would be a great strategy because native ads work particularly well on mobile apps and most Messenger users are mobile.
For WhatsApp, Facebook might have something even bigger in the works. The company is not going to run simple ads. Instead, it aims to connect users with businesses and organizations they want to hear from. What this means is that the app could become the ultimate business-to-consumer communication platform.
The Bottom Line on Facebook Stock
And don’t forget, social media apps/platforms are not the only catalysts for FB stock. Facebook is also deeply involved in the virtual reality (VR) business. It owns Oculus, which makes the “Oculus Rift” VR headset—one of the hottest gadgets in tech today.
VR is expected to be huge. It was estimated by Forrester Research that by 2020, there would be 52 million units of VR headsets in enterprise and consumer use in the U.S. by 2020. If Facebook can capture just a small part of that, it would see billions of dollars of additional revenue. (Source: “Virtual Reality will Reach 52 Million Units in the U.S. by 2020,” Forrester Research, May 31, 2016.)
The bottom line: There are so many segments within Facebook that could become billion-dollar businesses on their own. With a few more big wins, even an aggressive target price like $250.00 is possible.