But there could be another driver, and that's payments.
Facebook, whose core platform has decelerated in the past year or so, has found new growth drivers. The stock has come back to life since falling to its 52-week low of $123 in the Dec. 24 selloff.
Facebook wants to leverage its existing platforms, such as Messenger, to get users to make payments through its ecosystem. But it's a crowded space. Providing either a premium payments service or a more convenient one could prove difficult.
In order to make a payment on Facebook currently, users just go onto Facebook Messenger and send and receive money for free. But Facebook wants to expand and monetize this service, not only because it could be lucrative, but also because it would give Facebook a revenue stream away from advertising and data-centric offerings.
The Barclays tech analysts have a base case of $3 billion in revenue in 2019 coming from "Facebook Coin," the payments platform, but a bull case of $19 billion. When Facebook ran a monetized payments platform in 2012, it saw an average revenue per user, ARPU, of 80 cents, which equates to the $3 billion in 2021 revenue Barclays models. So if the ARPU on Facebook Coin is higher, the $3 billion estimate could prove conservative.
Facebook will expand the offering onto What'sApp, which it's searching for a way to monetize, and maybe would like to avoid putting ads into the platform. Also, the payments would be transacted through a blockchain system; details on that have yet to emerge.
JPMorgan analysts mentioned the potential expansion of payments:
"FB is also focused on payments on WhatsApp, commerce & shopping on Instagram, FB Watch, & groups and communities," the analysts wrote in a note out at the end of January. "Accordingly, we believe Facebook is heading into a heavier product cycle than we've seen over the past couple years."
In fact, the JPM analysts updated their estimate on payments revenue, moving their 2021 payments revenue forecast up to $1.47 billion from $682 million.
Many analysts on Wall Street have not mentioned much about Facebook Pay, yet they've worked payments assumptions into their models. The stock hasn't moved much on the payments opportunity because there's little detail and clarity on the specifics of the plan, so theoretically, there could be considerable upside to the stock. Morgan Stanley analysts see payments revenue hitting $881.3 million for the full year of 2019, and reaching just over $1 billion in 2021.
Apple (AAPL - Get Report) has Apple Pay, which the iPhone maker aims to get users to use through text messaging and other iPhone features. PayPal (PYPL - Get Report) is essentially a payments giant, with a market cap of $115 billion. Square (SQ - Get Report) is also a considerable player. China, where payments growth rate is projected to be the highest out of any other country, is home to Tencent's (TCEHY) WeChat, social media/messaging platform that is home to a huge mobile payments system. Alibaba's (BABA - Get Report) AliPay is also an important player.
Adding a unique or premium value proposition may be hard. Among Barclays' list of "challenges and roadblocks" to payments upside is "demonstrating a value prop for users above what is available today." Plus, "whether the coin is built on an open or closed blockchain" is an important difference for the platform, said Barclays.
But even if Facebook only grabs a small sliver of the total addressable market, the revenue potential is still huge over the long term. Total transaction volume for digital payments in the U.S. is expected to be over $1 trillion dollars in 2021, according to data aggregated by Statista. That's lower than China's expected total transaction volume just for 2019, which is $1.5 trillion according to Statista. China's compound annual growth rate for the business is expected to be 18.5% between 2019 and 2023.
So should Facebook be investing in the space? "Facebook going after digital payments makes perfect sense," says Zev Fima, Jim Cramer's Action Alerts Plus Portfolio Analyst. "It allows them to diversify their revenue with a business that would seamlessly fit into pretty much all of their products, including WhatsApp and Messenger, two platforms that still have plenty of runway in terms of monetization."
"Bottom line, digital is the future of payments and given the already broad adoption of Facebook products for those looking to stay connected with friends and family, implementing the ability to transfer money quick and easy is a smart move," Fima said.
And the Facebook Stock?
Barclays' price target on Facebook is $210, suggesting about 23% upside. JPMorgan's price target is $195, and Morgan Stanley's price target is $190.
Facebook is currently ramping up several potentially new segments of earnings, and price discovery on the stock is still a big part of Facebook's story. The payments business is only one potential driver for this stock.
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