Facebook – Press F8

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F8 likely to be all about the emerging ecosystem.

• With Facebook’s developer conference approaching (12^th – 14^th April), the speculation as what Facebook will announce is beginning in earnest.
• Top of the list is the notion that Facebook will open up its messaging platform to allow publishers to distribute their content.
• I suspect that it will actually go much further and open up the platform entirely to developers to allow other functions within the messaging platform.
• Top of my list is games as both LINE and KakaoTalk have used their messaging platforms to create thriving multiplayer gaming environments.
• This combined with opening up the platform to publishers would help Facebook accelerate its move to add both media consumption and gaming to its Digital Life services offering.
• The aim here is to entice users to do more with Facebook than just social networking and instant messaging.
• This is the key to changing from being just an app into a fully-fledged ecosystem where users spend an increasing amount of their digital lives.
• Facebook is combining this expansion with limiting the degree to which users can link to competing offerings like Snapchat.
• Furthermore, it is also creating all of the software infrastructure needed for its services to operate completely independently of Google.
• Currently, many apps on Android are reliant on Google Play for functions like updates and notifications and it is these dependencies that Facebook is working to remove.
• All of this adds up to Facebook aggressively moving to become a fully-fledged ecosystem with over 1.5bn users and 80% coverage of the Digital Life pie.
• Facebook still has a very long way to go but once this is complete, RFM estimates it will have the capacity to generate over $40bn in revenues compared to the $17bn it generated in 2015A.
• This is exactly why Facebook is emerging as Google’s No.1 competitor as a large piece of this new opportunity that it hopes to generate is likely to come from Google.
• While the long-term looks good for Facebook, I am a little concerned about short-term expectations.
• This is because I don’t think that the new services of gaming and media consumption will be mature enough to generate real revenues before growth from social networking runs out.
• This is why RFM forecasts that Facebook will begin to fall short of consensus forecasts during the second half of 2016E.
• The net result is likely to be a sharp correction in the valuation of the stock which I think will serve as a great entry point for taking a position in Facebook for the long term.
• In the immediate term I prefer Samsung and Microsoft but still see Apple as a reasonably safe place to park capital.