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'Watch' As Facebook Climbs Another 50%

Dec. 05, 2018 7:15 AM ETMeta Platforms, Inc. (META)NFLX84 Comments
Arturo Neto, CFA profile picture
Arturo Neto, CFA


  • Industry trends have been shifting into streaming and video on demand services.
  • With 1.5 billion users and growth potential overseas, FB is well positioned to gain a substantial market share of the VOD market through Facebook Watch.
  • After a recent 15% pullback, we are still very bullish on the stock.
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Facebook (FB) is shifting from its tried and tested News Feed based revenue model and focusing more on other avenues such as Facebook Watch, the newly launched content streaming platform of the social media giant, and Facebook Stories. The initial launch of the video on demand platform has not been able to gain traction, but the massive user base, increasing revenue per user on a global scale, and Facebook's massive cash balance can put Facebook Watch in the driving seat of the content streaming industry. Facebook Watch should not be analyzed as the next big venture of the company, however, but rather as another feature that would help Facebook build on its loyal user base - which they can continue to monetize in the future.

Overview and industry analysis

Since the devastating earnings call in July, Facebook shares have dropped a staggering 40%, but company fundamentals are little changed.

While analysts believe Facebook would be better off focusing on the News Feed based model which has generated billions of dollars so far for the company, I believe Facebook Watch provides the opportunity for the company to grow and capture a greater share of the streaming industry. More importantly, I believe Facebook Watch will encourage users to spend more time on the platform rather than shifting to more popular alternatives such as YouTube or Netflix. A higher number of hours spent on Facebook should translate into higher revenue for the company as advertisers would be inclined to market their products and services on FB as opposed to other social media giants.

Facebook's economic moat is built on the network effect, and Messenger, WhatsApp, and Instagram are all contributing toward a higher user retention with the platform. Due to the nature of the industry in which Facebook operates, higher competition does not become a concern as long


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This article was written by

Arturo Neto, CFA profile picture
I have been involved in financial services for almost 30 years. When I first started focusing on financial planning and money management it was out of a first-hand experience watching friends and family having to work well past retirement age because they hadn't saved or invested enough. Eventually I landed in a family office worth hundreds of millions of dollars where I was able to see 'how the other half lived' so to speak. I now operate a wealth advisory firm and publish articles on Seeking Alpha for DIY investors that prefer to manage their own money. As publisher of The Income Strategist, a premium subscription service on SA, my goal is to guide investors on how best to generate income from their investments. The service includes several income portfolios with different strategies that members can use independently or in combination. As part of the service, I also collaborate with other SA authors to provide broader and deeper coverage of investing. In addition to being a Chartered Financial Analyst, I am also a Certified Private Wealth Advisor and have an MBA from the Darden Graduate School of Business at the University of Virginia. I also hold a Master of Science in Finance and Bachelors in Finance from Florida International University. Having lived in Miami almost my entire life, my family and I relocated to Nashville, Tennessee in May 2018 in the pursuit of a better lifestyle and southern hospitality. If you're ever in the area, please do reach out. I'm happy to be teaming up with the following expert analyst contributors:1. Dilantha De Silva2. The Belgian Dentist

Analyst’s Disclosure: I am/we are long FB. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.


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