Facebook (FB - Free Report) shares have appreciated 4.8% over the past month, easily beating the S&P 500 average increase of 1.3% and the 2.8% appreciation of the Internet Services market, to which it belongs.
The Zacks Rank #3 (Hold) stock (You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here) hasn’t seen estimate revisions during this time, but given its Growth Score A and promise to invest heavily in the business this year, that isn’t really surprising.
So what’s the reason for the enthusiasm about Facebook? Read on to find out.
Sports Deals Are Rolling In
Social networks are a big boon for sports leagues and rights holders because of dwindling viewership on traditional platforms like TV, especially among younger audiences. Social networks also facilitate better interactions with the event by combining viewership, commentary and reactions to a game, making it a more enjoyable experience.
They also help content providers reach their audience directly, resulting in innovations that can further personalize the experience. That’s the reason they have been trying out events on both Facebook and Twitter.
Over the past month, Facebook signed on Major League Baseball (MLB) for a game a week and Univision Communications for 46 Liga MX games (live games from Mexico’s top soccer league). The Liga MX games are targeted at U.S. audiences only with Tonia O’Connor, Univision’s chief commercial office and president of content distribution expecting it to better connect with and grow its English speaking audience.
Video Is the Future
Facebook has launched a new TV app for Amazon (AMZN - Free Report) Fire TV, Apple (AAPL - Free Report) TV and Samsung Smart TV, with possible plans to further expand to other platforms like Microsoft (MSFT - Free Report) Xbox, Sony (SNE - Free Report) PlayStation and other streaming devices. While this will likely enable/support longer video formats, Facebook has said its intention is not to compete with Netflix but rather to enable Facebook users to watch their preferred video on just about any screen of their choice (and that includes TV screens).
Of course that’s not the only video announcement Facebook made. The company says that henceforth, videos will play automatically with the sound turned on by default (if the device sound is turned on) and the window will retreat to the bottom corner of the screen so you can keep watching the video while scrolling through your newsfeed. Facebook says that testing shows positive reaction from users although it’s obvious that not everyone will be overjoyed.
Facebook is also reportedly in talks with music labels to bring their content to the app, which seems like an open challenge to YouTube, Google’s competing site. For labels, the new distribution channel will increase their leverage against YouTube for more favorable terms. On the flip side, the chances of piracy will increase given the nature of Facebook’s free platform.
The increased scope for advertising is also an indication that the company is gearing up to grab its share of TV ad dollars.
Time for a VR Reality Check
Last year saw a lot of hype related to virtual reality (VR), which was billed as the next major platform for consumer-type experiences after the mobile revolution. SuperData Research reportedly had very ambitious growth targets of $5.1 billion in 2016 (from $600 million in 2015) to $8.9 billion by 2017 and $12.3 billion by 2018. The longer term estimates are even more optimistic: Citigroup reportedly says that the AR/VR market will generate $2.16 trillion by 2035.
Near term, however, things don’t look so good, with the market doing just $1.8 billion in 2016. The primary drawbacks to adoption seem to be compelling content and software tailored for the VR experience and still-high prices for a technology that is still in its very early days.
Sufficient software won’t be available until there are big enough platforms, whether based on Occulus or Google’s Daydream, which is why the two companies are pushing away regardless.
Device prices vary hugely ranging from the (HTC Vive at $799, PlayStation VR at $399 and Occulus’ own Rift somewhere in between at $599 without the $199 for the Touch motion controllers). Others like Microsoft, Apple and even Alphabet’s (GOOGL - Free Report) Google have invested in augmented reality (AR).
Facebook chose the high end because it has always held that for VR to succeed, the feeling must be good, not the quick-heating, nauseating experience enabled through smartphones. And because it wants to ultimately enable social networking using the technology. At any rate, the company has now decided to scale back the number of Best Buy store-within-stores from 500 to 300. It’s also decided to lower the price of Rift+Touch to $598. The strategy makes sense: bring more people on the platform to finance its further development.
Activists Don’t Want Zuckerberg as Board Chairperson
A group of activist shareholders, part of a consumer watchdog group called SumOfUs have proposed that an independent chairperson would better “oversee the executives of the company, improve corporate governance, and set a more accountable, pro-shareholder agenda.” It won’t be easy to beat Zuckerberg since he holds the majority voting power, but according to Lisa Lindsley, the capital markets adviser for SumOfUs, the proposal “is advisory in nature… There could be a 99% vote in favor of it and the board would not be under legal obligation to implement it. However, most competent board members realize that it is unwise to ignore the voice of the shareholders whose interests they are charged with representing.”
Facebook Job Posts
Facebook has found another use for its sprawling network: it is now connecting employers with employees. While LinkedIn (now part of Microsoft) has been around for a while, the site is more popular with higher-income groups. Facebook on the other hand has people from every walk of life and employers of every kind on its network, so it’s in a very good position to corner a much larger section of the market than LinkedIn ever reached.
A Fake News Solution?
Facebook has said that it will tag news stories that an independent group of people say are fake with a “disputed” tag. It won’t remove the stories however. Facebook has been on pulled up by the media since Trump won the elections and some people went as far as to say that the win was facilitated by moving sentiments with the help of fake news stories.
- New Accounts Chief: LinkedIn VP, controller, and chief accounting officer Susan Taylor will join Facebook as its chief accounting officer next month for an annual base salary of $400,000, annual bonus, a one-time, non-recurring sign-on bonus of $400,000 and restricted stock units with an initial value of about $3.5 million.
- New VR Chief: Facebook has made an important hire in Hugo Barra, who has spent the last three years revving up the marketing machinery at Xiaomi (the success of the Mi3 and Redmi smartphones are attributed to him) and serving as Google’s Android chief before that. Barra will replace Brendan Iribe as Oculus head and will also head up all VR efforts at Facebook. Iribe will move to the PC division, to speed up PC-based VR development.
- New Content Head: Facebook has snapped up Mina Lefevre, who was in charge of scripted programming at MTV to head up its content development efforts. She will report to Ricky Van Veen, co-founder of CollegeHumor.
- WhatsApp Monetization in India: Facebook is looking to launch WhatsApp for Business in India where 15% of its user base (200 million) is located with the goal of allowing commercial messaging to small businesses of up to 10 employees. This will help monetize the platform and if successful, lead to a broader rollout across the world.
- Sued for Occulus Tech: A jury has decided that ZeniMax will receive $500 million from Oculus owner Facebook as it was guilty of copyright infringement, the failure to comply with a non-disclosure agreement, and for the misuse of Oculus trademarks. The amount to be paid is split up as follows- $200 million for violating a non-disclosure agreement, $50 million for copyright infringement and $50 million for improper use of ZeniMax trademarks. ZeniMax will also pick up $150 million in damages from Brendan Iribe and $50 million in damages from Palmer Luckey, the two Oculus co-founders. However, the court ruled that the Rift maker wasn’t guilty of trade secret theft, a point that will be used by Oculus to frame its appeal.
- German Case: A Syrian refugee brought a case against Facebook requesting an injunction for hosting fake posts that linked him to crimes and militant attacks. Facebook acted quickly to block the posts after they were pointed out by the plaintiff’s lawyer and the court ruled that Facebook was “neither perpetrator nor a participant” in the “undisputable defamation.” The plaintiff maintains that the fake information can be viewed outside Germany and also within Germany using the sophisticated Tor browser, but the court ruled that its visibility by average Germans was limited. Whether other actions were required or possible has to be decided by experts according to the court. The plaintiff has one month after the written order is passed to appeal the decision. This is an important win given that regulators are already considering a law related to hate speech on Facebook.
- Italian Lawsuit: Facebook has been fighting a copyright case in Italy where Italian software developer Business Competence claimed that its “Nearby Places in Italy” feature was a copy of the company’s highly popular Faround app. Last year, a Milan court ruled that Facebook would have to pay a fine of 5,000 euros per day for copyright infringement and unfair competition if it didn’t remove the feature. The social networking company has now removed the feature and has said it will appeal after a request to have the order put on hold while it awaited a ruling on the merits of the case was rejected.
- Media Audit Okayed: After repeated admitting that it miscalculated advertising metrics, Facebook finally agreed to be audited by the Media Rating Council. This should pacify advertisers because the accreditation service is also used by many of them (and publishers) thus adding to its credibility.
- New Video Ad Format: Facebook has said that it is going to start showing ads inside videos, not the pre-roll ads that YouTube uses but mid-roll, when you’re around 20 seconds into the video. There can also be more than one commercial break in the video, but these will be at least two minutes apart.
- Chatbot Scale Back: Facebook wanted Messenger to be the go-to place for brands to interact with their customers. So the company launched chatbot developer tools roughly a year ago. While it initially announced that nearly 11K chatbots had been developed, there hasn’t been much news recently about new apps. Now, the Information reports that many of the chatbots weren’t able to answer 70% of customer queries, leading Facebook to shelve the idea for now.
- Messenger Enhancements: But The Information also has good things to say about Messenger. For one, it reports that Facebook is starting an artificial intelligence (AI)-powered suggestions feature wherein nearby places for shopping or entertainment can be discovered. It is also apparently working on a native payments platform that will allow users to make payments. The enhancements will reportedly be announced at its annual developer conference in April.
- Money Transfer Through Messenger: London-based TransferWise has launched a new service through a chatbot that allows Facebook users to make international money transfers (from the United States, Britain, Canada, Australia and Europe) through Messenger.
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