- Facebook accelerates alternative revenues stream developments.
- Oculus business line will grow significantly next year with the Rift launch.
- Messenger monetization through P2P payments and ride-hailing partnerships.
- Local business directory and reviews system to boost social media revenues.
For a long period, Facebook (NASDAQ:FB) has dominated the social media market without a real competitor to threaten its leadership position. From time to time, several newcomers attempt to challenge Facebook’s dominance like Google+, Twitter (NYSE:TWTR), Secret and others, but none `01of them have been able to get close to Facebook. As shown in the chart below, Facebook controls almost 50% of the social media market. Facebook's biggest competitor is the video sharing platform YouTube with 22%, and Twitter drags behind with only 4% of the market.
When a company controls a market in such a convincing manner, its biggest threat is to fall into stagnation and expect that the current situation will last forever. A few years ago, Facebook started a process to generate new business lines to boost total top-line figures and create new revenue streams in addition to the advertising revenues from its social media platforms.
Oculus Rift is probably Facebook’s biggest bet towards developing new business lines, and the first generation of the long awaited VR headset is expected to be released in Q1 2016. Revenues in this segment include the device price that consumers pay, app store revenues, and licensing fees of the Oculus software to other tech companies, like Samsung Electronics (OTC:SSNLF) Gear VR. In my opinion, virtual and augmented reality will be the hottest consumer electronics devices of 2016, with plenty of new products like Google Aura (formerly Glass),Microsoft (NASDAQ:MSFT) Hololense, Sony Corp (NYSE:SNE) PlayStation VR, HTCXF Vive, etc. In the VR segment of the smart headset, Facebook-Oculus is perceived to be the market leader, attracting much attention to its product introduction and creating high expectations from investors.
Another new business line that Facebook is accelerating and expects to grow even more in 2016 is Messenger monetization, through new added-value services. The first service in this emerging revenue stream was the P2P payment transaction that was launched earlier this year as the first step to monetizing Facebook’s successful Messenger app. Last week, Facebook took another step in this direction when it announced that Messenger users could hail Uber cars directly from the app.
In the first stage, this new feature is supported only with Uber and only in the U.S. However, Facebook plans to expand this service globally and include other ride-hailing services like Lyft in the US. Uber will pay Facebook a fee from the rides fare and will subsidize first car ordering through Messenger up to $20. This move will enable Facebook to capitalize on the boom in ride-hailing services worldwide and benefit from all players as Uber competes with the Lyft/Didi Kuaidi/Ola/Grab Taxi worldwide network.
Facebook did not abandon the social media revenue line and launched a local business reviews service to compete with Yelp (NYSE:YELP), Angie's List (NASDAQ:ANGI), and Home Advisor. For Facebook, this is a low-hanging fruit as most of the local businesses are already active on Facebook and Instagram, and most of the company/product launches are shared on these platforms, and customers search for businesses on Facebook and write reviews about and grade local businesses. Moreover, Facebook could use profile information to suggest businesses that might meet users' interests and drive more traffic to the reviews services.
These three new revenue streams are Facebook’s growth catalysts for 2016. As shown in the chart below, Facebook stock price hiked more than 33% this year, while sell-side PTs offer an additional 25% upside from the current Facebook stock price. For me, Facebook stock is a prominent long pick for 2016.