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3 Reasons Why Facebook (FB) Is Just Getting Started

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Facebook (FB - Free Report) has come a long way since its inception in a dorm room at Harvard. Between killing MySpace, learning how to become profitable, and becoming a publicly traded company, Facebook has matured noticeably in its short lifespan.

As busy as Facebook has been in recent years, it does not appear to be showing any inclination of slowing down anytime soon. With a constantly growing user base, further refinements of its service, and plans for continued innovation, there is still plenty of gravy left on this train.

Let’s take a look at what Facebook has been up to recently and why they are just getting started.

Messenger Recently Hit 1 Billion Users

On July 20th, Facebook announced that its mobile messenger had hit the milestone of 1 billion monthly users. They are now the second to accomplish the feat, only behind WhatsApp, which did it back in February. Considering Facebook acquired them just two years ago, it appears that their grip on the mobile industry is tightening.

Important to note however, is that Facebook is still banned in China, where Tencent’s TCEHY WeChat has a firm grip and over 750 million monthly users. Line LN, which recently launched its IPO, has over 200 million monthly users as well and is quite popular in Japan, Thailand, and Indonesia as well as other countries in the region. As much progress as Facebook has made, it still faces plenty of competition.

The 1 billion user milestone is important for Facebook, which otherwise has not profited from its messenger division yet. Founder and CEO Mark Zuckerberg has indicated that he would wait until this milestone to explore profitability options for the service, as he did not want to “scare users away.”

In its Q4 2015 earnings announcement back in January, Facebook stated that it hit more than $1 billion in quarterly profit for the first time in the company’s history. A large chunk of its revenue came from mobile advertisements, accounting for 80% of total ad revenue compared to just 20% a year before, with newly ad-supported Instagram contributing to the increased growth at the time.

Facebook has set itself up to benefit from multiple lines of revenue, and an increasingly relevant messenger application becomes another potential revenue boost. It is poised help sustain Facebook’s growth, as well as provide more funds that can be reinvested in the company’s new initiatives, which we are about to discuss.

Striving Towards Further Democratization of the Internet

On Thursday, Facebook announced that its Connectivity Lab division performed its first successful full-scale test of Aquila, the company’s unmanned high-altitude aircraft. Aquila, a solar-powered airplane with the wingspan of a Boeing 737, is part of the Facebook’s plan to beam internet through the use of laser communication and millimeter wave systems to those who otherwise do not have access to the internet.

There are still 4 billion people without internet, of which 1.6 billion live in remote locations. Facebook hopes for Aquila to operate from 60,000 feet in the air and have the capacity to provide internet in a 60-mile radius. The beam that it sends would be picked up by antennas and dishes on the ground, connecting more people to the World Wide Web, and ultimately to Facebook as well.

Facebook hopes that a finished Aquila will be able to stay in the air for three months at a time before needing to land. Although there is still plenty of time before it takes flight, the success of its most recent test is promising.

Facebook Continues to Look Ahead

The reason why Facebook has managed to accomplish what it has is because of the ability of its management to look ahead. We’ve talked a bit already about Facebook establishing multiple sources of revenue, and this has come with their continued investment into the next big thing.

After acquiring WhatsApp, Facebook also announced its plan to acquire the virtual reality (VR) startup Oculus Rift in a deal that closed in the summer of 2014. Zuckerberg explained the acquisition by stating that “At this point we feel we’re in a position where we can start focusing on what platforms will come next to enable even more useful, entertaining and personal experiences.”

We have pointed out that the VR revolution is poised to revolutionize the entertainment industry, and Facebook will be a part of that. There are critics of the acquisition too, with Minecraft creator Markus Persson stating that “Facebook has a history of caring about building user numbers, and nothing but building user numbers.” Either way, the acquisition will provide Facebook with new opportunities moving forward as they figure out how to make use of it.

Facebook has also invested considerably into artificial intelligence (AI). It uses programming to take note of the content that its users view, and offers recommendations along with targeted advertisements that pertain to their interests. By creating AI that can generate content, Facebook not only saves money, but also streamlines service quality and helps interpret the mountains of data that it generates.

As we have discussed, AI will only continue to grow in its applications to the various facets of our day to day lives. Facebook’s continued investments into the technology of tomorrow will help drive further innovation and growth, an integral element of any company that hopes to remain in business.

Bottom Line

With all that they have on their plate, it is clear that Facebook is working towards ensuring that it does not become the next MySpace (sorry Tom). With a growing service as well as increased channels of revenue and innovation, there is plenty of reason to believe that Facebook will remain relevant.

Momentum is in Facebook’s favor going into their Q2 earnings report on July 27th. Analysts have not revised earnings estimates in the last 60 days, with current estimates standing at $0.62 in earnings per share. Estimates are higher for both the quarter and the years to come as well, highlighting Facebook’s continued potential.

Investors should keep a watchful eye on Facebook, although considering how universal it has become, it probably won’t take much effort.

Facebook currently sits at a Zacks Rank #3 (Hold), and has seen a 16.5% year-to-date increase in stock value.

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