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TheStreet Open House

Why Facebook Shareholders Missed Out on Apple's Party

NEW YORK (TheStreet) -- Facebook (FB) blew through consensus revenue and earnings estimates for the first quarter and the market just shrugged. Apple (AAPL) also had a stellar quarter and the market rejoiced.

The two's stock prices took very different paths. Facebook, at around $62, is down 1.2% in the last month but up 7.2% for the year to date, while Apple, at $589, is up 8.6% for the month and nearly 5% for the year to date. Yet, in the March ended quarter, Facebook beat consensus earnings estimates by over 40%, Apple only beat by 14%.

Has the market made a mistake?

Facebook continues to hit on all cylinders when it comes to engagement and monetization. While Twitter's (TWTR) recent quarter raised concerns of slowing engagement, Facebook actually grew engagement. During the first quarter, Facebook's engagement (measured at daily active users divided by monthly active users) was up to 62.9%, compared to 61.7% for the December-ended quarter.

Now that Facebook has gotten the ball rolling on ads, monetization is really starting pick up. Ad revenue were up 83% year over year last quarter and the focus going forward will be to increase usage and engagement to drive ad revenues even higher.

The first part of that is monetizing video ads.

Earlier this year Facebook started testing auto-play video ads. Video ads could account for over 10% of Facebook's revenue this year. Longer term, the opportunity lies in being able to go after the $200 billion global TV ad market. Over 100 million users are already using Facebook during prime-time TV viewing hours.

Then there's the acquisitions.

Facebook has taken some heat for its recent spending spree. It forked out $19 billion for WhatsApp and then another $2 billion for Oculus. Although many investors scratched their heads at the WhatsApp acquisition, it remains one of the largest opportunities for Facebook.

WhatsApp only has around 450 million users. But that number is expected to skyrocket over the next few years, especially as Facebook is able to leverage its one billion user base to promote the app. The number of WhatsApp users could hit one billion by the end of 2015.

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