The "what have you done for me lately" mentality of investors isn't new, nor is there anything wrong with it. Continuing to grow isn't just a nicety, it's a necessity for publicly traded companies, regardless of past performance. Following Facebook's outstanding run in 2014 the question of how it can possibly duplicate, or even outperform, next year is a legitimate one.
The good news is that Facebook can, and will, have a banner 2015 due to its multiple avenues of potential growth. Though some industry pundits might point to WhatsApp's 700 million monthly average users, or MAUs, Messenger's 500 million MAUs, or Facebook's new Oculus Rift virtual reality headset -- to name a few -- as likely candidates to drive higher revenues next year, those will take a backseat in 2015 to two other sources of growth: video ads and Instagram.
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The sky's the limitAs Facebook fans likely know, it has yet to roll video ads out to the masses, at least not to any great extent. For the time being, Facebook's been content to test video spots with a select group of marketing partners for the tidy sum of $1 million a day. It's no wonder Facebook COO Sheryl Sandberg caused a stir in April when she said "we won't see a material contribution from it [video ads] this year."
For CEO Mark Zuckerberg and team, bringing video ads to the masses is about doing it right, and if that means Facebook gets a revenue kick by rolling out video spots in 2015, so be it. And if industry data is any indication, let alone Facebook's already industry-leading target marketing efforts, video will take revenues to a whole new level.
According to data from InfoWorx, consumers are five times more likely to click-through a video spot than a traditional banner ad. With Facebook's ability to utilize its reams of data to target the right banner ad, to the right person at the right time, the response rates for video spots will be through the roof. It's no wonder Facebook's marketing partners are willing to write a $1 million check for a day's advertising.
Introducing video spots is also perfectly aligned with Facebook's emphasis on mobile users. Turns out, smartphone and tablet users are more likely to purchase products and services after seeing a video ad on their device than PC users. Considering Facebook has over 1.1 billion mobile MAUs and generates about two-thirds of its ad revenues via mobile, it's safe to say it has a solid handle on that market.
Instagram's a slam-dunkLike video ads, Facebook isn't in a hurry to fully monetize Instagram. The concern is legitimate: Zuckerberg doesn't want to ruin the Instagram user experience, and he's proven that's more than just CEO-speak. It wasn't long ago concerns were voiced by industry pundits regarding Facebook's "need" to inundate users with ads to continue growing revenues. Turns out, Facebook simply improved its ad targeting capabilities, which in turn allowed it to charge more per spot. Revenue went up, and the Facebook user experience was undamaged.
At the same time, it's easy to see why shareholders are chomping at the bit to bring Instagram into the revenue-generating fold. As one insider put it, Facebook could "sneeze and create a $100-million-per-quarter-revenue business," from Instagram. And even though Facebook is head-and-shoulders above social media sites like Twitter in terms of MAUs -- 1.32 billion compared to 284 million, respectively -- Instagram outdoes both in "prestige," particularly among younger users. Twitter CEO Dick Costolo noted at its recently completed analyst day it hopes to utilize video too, both to improve the user experience and to jump-start revenues, ala Facebook.
As for Instagram, there are two additional factors to consider. One, Zuckerberg has plans to grow Instagram to a billion MAUs, and there's no reason to believe he won't make it happen. If the current 200 million, give or take, MAUs Instagram currently boasts could "sneeze" and generate $100 million a quarter in revenues, imagine what five times that many users will do. Secondly, Instagram's photo-driven experience is ideally suited for the aforementioned video ads, and combined with its younger demographics, marketers will trip over themselves to get onboard.
Facebook's 40% stock price appreciation in 2014 has certainly appeased shareholders, as well it should. For investors looking ahead to 2015, the opportunity is there -- thanks to video ad and Instagram -- for Facebook to do it all over again.
The article 2 Reasons Facebook Stock Will Soar in 2015 originally appeared on Fool.com.
Tim Brugger has no position in any stocks mentioned. The Motley Fool recommends Facebook and Twitter. The Motley Fool owns shares of Facebook and Twitter. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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