New Advertising Initiative Is Great News for Facebook Stock
Facebook Inc (NASDAQ:FB) is a rare gem in the technology world. Its brilliant “economic moat” has its competitors losing sleep. It’s fascinating how CEO Mark Zuckerberg’s peculiar ways of doing business are continuing to bolster this moat.
Zuckerberg has undertaken another big initiative, which hints at further upside potential for FB stock. It could be great folly to not call Facebook stock the best technology stock in 2017.
I’ll shortly explain why I make that claim. But first, brace yourselves, for “Facebook TV” is coming soon!
It’s not a physical TV (although we might eventually see one; after all, Facebook is already making technology hardware); it’s a television-like entertainment streaming service.
The company has just signed deals with famous publishers like Vox, Buzzfeed, ATTN, and the like, to publish original content on Facebook TV. But, before I divulge any more information, I must first deliver on my word as to why I say FB stock could be the best tech stock in 2017.
If you’ve followed my writings, you must already be aware of how I define Facebook’s economic moat—that is, the company’s unique “toll bridge” business model. I view its social media platforms (“Facebook,” “Instagram,” and “WhatsApp”) as the metaphoric bridges that connect businesses with their potential customers around the world. The former advertises on Facebook’s platforms, while the latter consumes the ads. Facebook, being the middleman, takes a cut, or a “toll,” for its service.
Facebook’s advertising fees make up more than 90% of the company’s revenue. Just to give you an idea how big its revenue base is, Facebook made an astounding $7.85 billion just in ad revenue in the latest quarter alone!
But this is only the tip of the iceberg, for Facebook is just warming up. The company’s new initiative is expected to bring in truckloads of ad money, and could send Facebook stock straight to the moon.
Facebook TV Is a Game Changer for FB Stock
A television streaming service may sound like an odd project for a technology company but, when you see an e-commerce company (Amazon.com, Inc. (NASDAQ:AMZN)) and an online search engine company (Google, which is owned by Alphabet Inc (NASDAQ:GOOG)) making money off streaming, the pieces start falling into place.
You see, for its revenue base to keep growing, Facebook must keep adding new features to its platforms, even if that means blatantly copying peers. And Zuckerberg is not too shy to admit that this is exactly what he’s doing now.
No, I’m not talking about Facebook’s attempts at cloning archrival Snap Inc (NYSE:SNAP). That is history, not news. I’m talking about Facebook’s latest bid to imitate the big daddies of the tech world, Amazon and Alphabet.
The reality is that the technology landscape has become cut-throat competitive over the years. To stay ahead of the curve, tech companies are getting their hands dirty in just about anything that sells. And video content sells a lot. Just look at Netflix, Inc. (NASDAQ:NFLX)!
But, unlike Netflix, Facebook will be monetizing its streaming service. Plus, Facebook holds a unique advantage over services like Netflix and “Amazon Prime.” About one-fourth of the world population uses Facebook. Let’s face it; two billion people is an enormous target to surmount for these streamers.
Now Facebook’s plan is to stream two-tiered video content, which will be created by third parties but will mostly be owned by Facebook. In turn, Facebook will split the advertising revenue with the creators.
Here’s what the two tiers will look like.
- 20- to 30-minute webisodes that will be owned by Facebook.
- 5- to 10-minute videos, that may or may not be owned by Facebook.
Both kinds of videos will be running advertisements. (Source: “Exclusive: Facebook signs BuzzFeed, Vox, others for original video shows – sources”, Reuters, May 24, 2017.)
Of particular note is the demographics that Facebook is intending to target. Signing deals with the likes of Buzzfeed and Vox, instead of more mature news publishers like CNN and BBC, means that Facebook is primarily focusing on the millennials for now. It makes perfect sense.
After all, millennials are the biggest consumers of Facebook ads. It’s true that they are not as deep-pocketed as the baby boomers, but that’s because millennials save less and spend more. For Facebook, that’s a healthy trend.
Also, pay close attention to the tier-2 content that Facebook is planning to crank out. These shorter videos will likely copy Snapchat’s “Discover” feature. Yes, Zuckerberg is gearing up to throw another curveball at Snap.
Bottom Line on Facebook Stock
My friends, the reality is that people are giving more screen time to their smartphones today than they are to their television sets. Facebook has realized that there’s a lot of money to be made off this trend. Also, it’s easier for the company to pull it off because Facebook has the unique edge of having roughly two billion members of the world’s population already on its platform.
Facebook TV is expected to be launched this quarter and, by the next quarter, holders of FB stock will likely be able to reap rewards for their patience. This new avenue of ad money is going to fatten up Facebook’s bottom line, which means that more smart money could funnel into Facebook stock. I see it getting an easy lift beyond the $200.00 level before we bid farewell to 2017.