It has been 11 years since Facebook Inc. (NASDAQ:FB) was founded. Two years after its launch, the website was made available to the general public with registration free of charge. As of March 2015, the company that started as an experiment has grown into a social media giant that boasts 1.44 billion monthly users. Facebook initiated its IPO in 2012 and currently has a market cap of $266.86 billion, and was the fastest company in the S&P 500 index to reach $250 billion market cap.
The biggest asset of the company is the sheer data volume it generates every day. The company acquired WhatsApp for $16 billion in February 2014. The communications service reported 800 million monthly average user base in April this year. Nearly 30 billion messages are sent from the app every day. Facebook, three years ago, also acquired the photo sharing website Instagram for $1 billion, which recorded 300 million users by December last year. Furthermore, the company has its own Facebook Messenger mobile app service that allows registration for even those who do not have a Facebook account.
Considering all these acquisitions and developments, including the company’s foray into virtual reality with its acquisition of Oculus Rift VR for $2 billion in March 2014, the question arises: What is the next step for the company?
Facebook previously hinted at making its own mobile OS when it bought Parse for $185 million in 2013. Parse was not an OS, but a mobile-backend-as-a-service that helps the development of mobile apps. It was touted at the time as a plug-and-play backend for the expected Facebook mobile OS. Parse provides mobile apps with data storage, notifications, and user management.
The reason why Facebook has not launched its own mobile OS is likely because the company values itself as an open source of connectivity and communications, and may have little interest in creating a product that would be utilized by, at most, about 100 million people. It has therefore relegated itself as being a support provider for apps running on the Google Inc. (NASDAQ:GOOG) Android and Apple iOS software.
In this respect, the idea of a Facebook smartwatch can be extrapolated as an extension of its News Feed and other acquired services, and thus has the potential of providing greater functionality to its users. A Facebook Watch can embed the idea of Mark Zuckerberg’s internet.org as well. A low-cost watch for consumption in emerging countries can enable people to receive internet.org signals on the watch and get the News Feed notification, Instagram photos, WhatsApp communication, and messenger service on the phone. A low price tag below $200 will enable many Facebook users to buy the Watch as complementary to Facebook browsing. Facebook can also add certain fitness tracking mechanisms, to increase the product’s functionality beyond just a social interactive platform.
If such a watch gains traction, then the next-gen watch can take a technological leap and sync itself with the Oculus VR, creating an ecosystem of sorts.
Facebook definitely has the resources, with cash outlay of $5.123 billion in second-quarter fiscal 2014 (2QFY14). It posted revenue of $12.5 billion during FY14, out of which $1.8 billion was from the Asian region. The region has a three-year growth of 71.5%.
Bidness Etc is bullish on the stock, which has gained 20% in the past three months. Year to date, it is up 19.82%. Facebook is on the lookout for more acquisitions and growth products. With its advertisement model being streamlined for WhatsApp and Instagram, the company may garner higher revenue from these sources. Mr. Zuckerberg’s propensity to acquire user data may see the company delve into wearable products that can provide advertisers with a unique way to sell to consumers. A user sending a WhatsApp message about shoes to a friend, for example, can be alerted with discounts on his/her Facebook Watch.
Stock wise, Facebook is a long-term Buy, and the way the company is currently performing, the Facebook Watch may well be a not-too-distant reality.
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