Facebook Inc - Ordinary Shares - Class A

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Why Facebook's Impossible Growth is Still Exploding Higher



Fundamentals

Written by Ophir Gottlieb, 12-24-2015


PREFACE
Facebook's growth has been impossible -- literally the fastest ever to its market cap. But the growth has every sign of continuing as Facebook has developed a collection of technologies whose consumer base looks "increasingly like all of humanity."



STORY
Facebook Proper has over a billion daily active users and is growing nearly 25% year-over-year. Facebook has more "customers" than any company has ever had, and friends, this is all without any access to China.

Further, the company has 900 million users on WhatsApp, 700 million users on Facebook Messenger and over 400 million users on Instagram. Here's an all-time revenue chart.



We can see the company has generated just under $16 billion in annual revenue and its growing 42% year-over-year, which is absolutely absurd considering Instagram, WhatsApp and Facebook Messenger have yet to be monetized. That's right, the three other colossal social media properties that Facebook owns are just now about to generate revenue.

To add some context to that "absurd" growth, we have plotted all technology companies larger than $50 billion in market cap, equal spaced them (ranked) on the x-axis and plotted revenue growth (one-year) on the y-axis.



We can see Facebook is outpacing everyone, and it's really not even close. But the growth is just beginning.

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GROWTH: INSTAGRAM
Mark Zuckerberg bought Instagram for $1 billion and oh how the main stream media and Wall Street laughed at his momentous mistake.

Today the company is valued at $20 billion.

Instagram is making substantial progress on the monetization front. According to Axiom Capital Management's Victor Anthony ads on Instagram just started and major brands like Wal-Mart (WMT), McDonald's (MCD), Toyota Motors(TM), Capital One Financial (COF) and Whole Foods (WFM) have become ad buyers.

And while people have called foul that ads will ruin the service, they are, yet again, dead wrong. Check out what Marnie Levine, chief operating officer of Instagram said:

There are some kinds of ads I hadn’t expected would produce so much meaning to people on Instagram.” One example she cites is a Capital One ad with the theme of “what’s in your wallet.” For several weeks, the bank turned over its Instagram account to three ordinary users, who posted images of things found in their wallets. Facebook says the campaign resonated with Instagrammers, while Capital One says it was successful, too.
Source: Yahoo! Finance


And now check out this chart from RBC:



That's am example of one of those cool ads and the hard data behind Instagram's massive growth. Tim Brugger of The Motley Fool estimates $700 million in revenue from Instagram in the next year and Axiom Capital projects $4 billion in revenue by 2020.

I think there's reason to believe that monetization will substantially higher and faster.

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GROWTH: OCULUS  
Now, here's the start of the story of why Facebook has nearly unlimited upside, and I warn you: Get ready to get bullish, because these are the facts, and they are not disputed.

Oculus, the virtual reality hardware unit, is supposed to ready for mass distribution in early 2016. Facebook has its sights set on the way we consume all gaming and media, especially movies and television. But the hardware isn't the crown jewel, its Facebook's app that goes with it.

This is why the upside for Oculus is impossible large -- spanning all of humanity per the analysis of Dave Thier at Frobes:

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GROWTH WHATSAPP
WhatsApp is the second largest social media in the world at 900 million active users and that's a gain of 100 million MAUs since April and more than double its user base from just over two years ago (Source: The Motley Fool).

But WhatsApp is totally different from other social media. WhatsApp is at the forefront of connecting billions of more people that don't have smartphones and is setting up to be one of the most dominant and and totally exclusive avenues for anyone in the world to advertise to lesser developed countries.

This totally different type of social media has the power to connect the world and to double Facebook's reach and here's how:

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CONNECTING THE WORLD
Jay Parikh, Facebook’s vice-president of engineering, said:
"Our mission is to connect everybody in the world."
Source: The Guardian.

India is Facebook's second largest market with 125 million+ users. But here's where it gets insane. As of June, Facebook reported that nearly 90% of the users access the services via their mobile phones. There simply is no other service or company out there that can control this massive user base in every part of the underdeveloped world, other than Facebook’s various 'Lite' services.

Facebook has a plan to beam Internet connections to the far corners of the Earth and very recently the company uncovered how in a private session to the press. Here's how it works.


Photograph by Reuters


Get the full story here on CML Professional.

GROWTH: FACEBOOK MESSENGER
Keeping it rather brief, Messenger has evolved into a platform for peer-to-peer payments, apps, and perhaps most importantly, social games. Its payment app competes squarely with PayPal's Venmo. The Motley Fool does a bang up job on describing how FB Messenger can be monetized, here's a snippet:

"Facebook's long-term goal is for Messenger to evolve into a monolithic chat app like Tencent's WeChat, which has 549 million active users. Last quarter Tencent reported that gaming revenue from WeChat and its other chat platform, boosted its online gaming revenue to $2.15 billion."
Source: The Motley Fool

Yes, WeChat generated $2.15 billion with 550 million users in China. Facebook Messenger has 700 million users. Keep in mind, if King Digital or Zynga release their games simultaneously in iOS, Android and Facebook's "mini-app" store, that's an immediate competitive stance by Facebook against Apple's app store. After all, if a game is purchased through FB, there's no need to download it (again) for your phone. That's big revenue from multi-billion dollar gaming companies.

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GROWTH: SEARCH
The company announced that it has indexed 2 trillion posts, strengthening its search capabilities which is a direct competitive move to compete with Google's (Alphabet) core search business as well as Twitter's news product and 'Moments.' Vice President of Search, Tom Stocky said:

"With over 1.5 billion searches per day and over 2 trillion posts in our index, search is an important, long-term effort at Facebook."
Source: TheStreet.com


GROWTH: INNOVATION
Facebook may very well be in place to show the greatest growth of all mega cap technology firms and is easily innovating communications at a level not seen in nearly a century. Here's a chart that plots research & development expense for every dollar of total expense on the y-axis with the same large cap technology peer group equal spaced on the x-axis.



This is the beginnings of the impossible journey we are about to embark on but let's get one fact straight. Facebook spends more on R&D per dollar of operating expense than any large cap technology company in the world. Period.

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GROWTH: FACEBOOK PROPER
It almost doesn't make sense that Facebook proper is still growing so quickly considering it has 1.55 billion monthly active users and the company is locked out of China. But making sense isn't really the Facebook way. Facebook proper is still growing and we can read the full story here on CML Professional.

CONCLUSION
FACT: Facebook proper is growing at a ridiculous rate for a product with 1.6 billion customers every month.

FACT: Facebook Messenger has a model to follow that should turn it into a multi-billion business and a direct competitor to Apple's app store for gaming.

FACT: WhatsApp is at the forefront of connection billions of more people that don't have smartphones and is setting up to be one of the most dominant and and totally exclusive avenues for anyone in the world to advertise to lesser developed countries.

FACT: Instagram has more users than Twitter, it's growing, and forecasts call for revenue of over $4 billion in a matter of years.

FACT: Oculus is aimed at being the greatest change in communications technology ever. Period.

FACT: Facebook's solar drone program aims to connect the company to another 3 billion people, giving it half of the world as a customer base.

FACT: And there's more. Facebook is moving into real-time video capability for every user (like Periscope, but ya know, with 600% more users).

FACT: Facebook is getting into search to challenge Google.

Facebook has just begun and the end very well may be a company worth a trillion dollars with half of the world as its customer base.

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Thanks for reading, friends.