- Winner take all tech is manifesting itself in the market
- Facebook is ripping to new highs on a great Q3 earnings report
- Emphasis on long term growth instead of short term earnings makes Facebook the most loved stock on Wall Street
Facebook, joining the ranks of Apple, Amazon, and Google has become one of the most loved stocks on Wall Street and Main Street. The social media company has the largest active user base in the world. Facebook currently services up to 1 billion users in a single day.
We are seeing “winner take all” tech manifesting itself in the markets. Users beget more users which creates an unstoppable momentum pattern of attention. This creates a monopolistic scenario where one company owns almost all of our daily attention. Facebook is one of these crowned champions.
FB’s Q3 earnings report shattered expectations.Their ad revenue and user engagement is booming. The titan of social media reported earnings of 57 cents per share on $4.5 billion in revenue. The Street was expecting 52 cents a share on $4.37 billion in revenue. Furthermore, the Street expected daily active users to come in at 992 million, Facebook beat there as well boasting a 17% increase to 1.01 billion daily users.
Facebook is proving real time for us just how well a social media website can be monetized.
The Core Business Going Strong
Facebook’s core business is ad revenue. Analysts were skeptical of whether or not the company could make the transition to mobile as more and more users ditched their laptops in place of cell phones for Facebook access. Those skeptics are eating their words as mobile advertising revenue now makes up over 78% of their total advertising revenue and continues to climb. Businesses small and large alike are foaming at the mouth to place more ads on facebook.
RBC capital markets conducted a survey in September and 61% of marketers surveyed said they planned to spend more on Facebook ads next year. SocialCode, an advertising-technology company, says its clients’ spending on Facebook video ads tripled during the first three quarters of 2015 when compared with the same period in 2014.
Exciting Growth Ahead
Facebook killing their Q3 earnings is only the foundation to the bullish narrative. Beyond growing EPS and sales, Facebook has a tremendous amount of exciting “disruptors” in motion.
Their acquisitions of WhatsApp and Instagram have proven to be excellent decisions. WhatsApp has over 900 million users and Instagram has over 400 million users. WhatsApp is still in a holding pattern, waiting to be monetized, but Instagram is already pulling in over $100 million in ad revenue and analysts project that number to be between 300 and 700 million dollars by the end of 2016.
On the search side of things Facebook processes 1.5 billion searches per day and has over 2 trillion posts indexed. This mass collection of data from customers aids in customizing and delivering an even better user experience. Personalized advertising is what will grow the and push the advertising industry in the future and Facebook has a huge leg up over competitors. Years of personal data storage makes it next to impossible for other companies to catch up and build an equally valuable database. Once this pandora’s box of valuable data is monetized correctly who knows how much ad revenue can skyrocket. Foundation Investing members are positioned long in the stock to take advantage of this next leg of high octane advertising revenue.
Long Term Innovation Not Short Term EPS
It’s refreshing to see a mega cap company focus on innovation and investment rather than short term EPS to please Wall Street analysts. Facebook is choosing to up expenditure in their capital investments so they stay an important force in our lives for the long haul.
Ground breaking and massively disruptive tech is emerging from these efforts. It’s not hard to mistake Facebook’s aspirations for a plot out of a science fiction novel.
Facebook plans to launch solar based drones to fly over remote areas of the planet to provide internet access. Only 37% of the world has access to the internet. By making the internet more accessible, Facebook can accelerate their user base even more. Facebook is on track to be one of the first companies to service the entire world.
The internet drone is only the beginning of Facebook’s ambitious innovation plans.
Facebook’s A.I. development is in pace with other tech giants such as Apple and Google. Artificial intelligence is seen as a key component in the future of big tech and Facebook does not want to miss the ride. Facebook is testing an artificial intelligence feature that will answer questions about a photo. This feature aims at helping blind people interpret the content posted to the social network.
Additionally, they are working on advanced memory networks which allow a machine to perform sophisticated questioning and answering. The impact of this type of technology could alter search as we know it. Imagine asking Facebook “How many people in Detroit like fantasy books?” and it being able to instantly understand your voice and respond to you by checking its proprietary personalized database. Whoa.
The Golden Goose: Oculus
Facebook’s virtual reality efforts, that started with the 2 billion dollar acquisition of Oculus, are close to becoming available for mass distribution in early 2016. Oculus virtual reality offers a fully immersive 3D gaming experience and is one of the most widely anticipated product releases for next year. Facebook plans to not only change gaming but extend virtual reality into all media including movies and television. The hardware itself comes with a Facebook Oculus app inside the headset which allows people to communicate. Early beta testers describe the experience as feeling as though you were in the same virtual space as someone else. So not only do we have groundbreaking and innovating gaming and media experiences hitting the market soon, we can look forward to a revolution in the way in which we communicate over the internet.
Conclusion
Facebook dominates now and is positioned to grow and profit nicely in the future through its new technologies and acquired platforms.
The company is impressing investors by crushing earnings while simultaneously investing in long term research and development. This is a rare combination on Wall Street these days and investors are celebrating the winner take all effect in big tech. Facebook looks poised to travel to the moon and beyond.
Foundation Investing is long Facebook stock.
