Loup Ventures

About the Author Loup Ventures

At Loup Ventures, research is in our blood. The spirit of our team has always lived on the curiosity to discover new insights that yield investment opportunities. For years we did this on Wall Street, focused on public tech companies. Now we invest in private frontier tech companies, but public companies like Tesla, Nvidia, and others are also meaningful innovators in frontier tech. These public companies are shaping the emergence of AI, robotics, autonomous vehicles, and AR/VR just as much as early stage startups. As a result, we’ve always kept a watchful eye on public market participants to inform our private investment strategy. Gene Munster is a managing partner and co-founder at Loup Ventures. Prior to Loup Ventures, Gene was a managing director and senior research analyst at Piper Jaffray where he covered technology companies including Apple, Amazon, Google and Facebook. During his 21-year tenure, Gene received many acknowledgements including: Top Stock Picker from Forbes, Best on the Street from The Wall Street Journal, and was widely recognized for his work on Apple. Gene holds a bachelor’s degree in finance and entrepreneurship from University of St. Thomas.

Facebook (FB) Stock: Bulls Win, What’s Next?


By Gene Munster

After nearly a year of safety and security PR nightmares, Facebook (FB) proved to investors that more people than ever still use Facebook’s platforms regularly and advertisers have few better alternatives for ROI on their marketing budget. Facebook has the audience, the data, and the breadth of ad inventory throughout its family of apps. When asked if he noticed any negative effect on user growth/engagement due to bad press last quarter, Facebook CFO David Wehner replied, “I’d probably just let the numbers speak for themselves.” However, it was also mentioned on the call how the company will be phasing out Facebook Blue specific metrics as its growth slows.

Stories

Last quarter, Zuckerberg said Stories, the disappearing image and video posts that Facebook famously copied from Snapchat, would become “a bigger medium than Feed has been.” This sent the stock down sharply as Stories currently bring is less revenue per ad than newsfeeds. This quarter, the tone surrounding Stories was a little more positive as metrics such as Instagram passing 500 million daily active Stories users and 2 million of Facebook’s 7 million active advertisers are using the new Stories ad format. We expect Stories pricing to improve for Facebook once demand increases as more advertisers adopt the new ad format. In the near-term, however, the shift towards Stories represents a key factor in revenue growth rates decelerating in 2019.

Growth Opportunities Ahead

With so much negativity baked into the Facebook stock, it was refreshing for investors to hear about the ways Zuckerberg is exploring new growth opportunities. There were four key takeaways in this update:

  1. Zuckerberg expects Facebook Watch to have a breakout year
  2. Instagram commerce and shopping experiences are coming
  3. Oculus Quest’s potential to take VR mainstream in Spring 2019
  4. Facebook Portal exceeded internal expectations

But perhaps the biggest opportunity on the horizon is Facebook’s efforts to monetize WhatsApp and Messenger, each boasting over 1 billion users. Analysts probed into specifics of when progress can be expected, especially given last week’s news that WhatsApp and Messenger are integrating with Instagram’s messaging platform. However, COO Sheryl Sandberg, who doesn’t appear to be going anywhere, stressed how the company is still focused more on user growth and retention. This is due to the fact the company is moving cautiously across an unprecedented path towards monetization as a messaging platform doesn’t work nearly the same as Facebook Blue or Instagram does.

Status Update

To conclude the earnings call, Zuckerberg said that 2017 and 2018 were about defining the company roadmap whereas 2019 has a clearer strategy to continue implementing. Those priorities are:

  1. Progress on social issues
  2. Making improvements to people’s lives with new experiences
  3. Strong business execution
  4. Communicate more transparently

There are inevitably more PR nightmares on the way for Facebook, but the company is investing heavily, at the expense of short-term margins, to ensure its platforms that bring out the best and worst of humanity can have a net positive impact on the world for a long time.

Disclaimer: We actively write about the themes in which we invest or may invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we may write about companies that are in our portfolio. As managers of the portfolio, we may earn carried interest, management fees or other compensation from such portfolio. 

 

Street Verdict

This ‘Moderate Buy’ tech stock is one to watch, having amassed 31 ‘buy’, 6 ‘hold’, and 3 ‘sell’ ratings in the last three months. When eyeing consensus expectations, the bulls win out here, as the stock points to almost 12% in return potential