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.

As far as monetization goes, Facebook is expected to convince upwards of 40% of WhatsApp users to pay for the app. With the cost only being $1 for the premium version of WhatsApp, that number could be even higher.

Even at 40% of WhatsApp users paying, that's still an incremental $400 million in revenue expected for 2015. Which is a pretty meaningful number, considering Facebook has generated $9 billion over the trailing twelve months. The user numbers could grow even faster than expected, with WhatsApp expected to roll out voice calls sometime this quarter.

In addition, Instagram still presents a big opportunity for Facebook.

Instagram's user base has doubled to 200 million monthly active users over the last year. It's now quickly approaching Twitter in size, which has 250 monthly active users. But Facebook has yet to figure out a monetization strategy for Instagram. That's another large revenue opportunity that investors might be overlooking.

The other angle for Facebook is the entry into the ecommerce market. Facebook is trying to acquire a license for a money transfer service in Europe. With its one billion plus user base, it only makes sense for Facebook to push into the ecommerce market.

Billionaire David Einhorn believes we're in another tech bubble, the first in 15 years. But none of this matters for long-term investors.

The focus should be on the fact that investors have a chance to buy shares of the world's leading social network at a price that's well off its all-time high from just a couple months ago.

At the time of publication the author had no position in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

>>Read More: Facebook Unveils Tools To Enlarge Its Mobile Footprint: StockTwits.com

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