Facebook growth opportunity

I recently read a Seeking Alpha blog post, where the author did a Discounted Cash Flow (DCF) on Facebook. He concluded that Facebook is currently undervalued by 40%. The forecast is that in the coming years, Facebook will more than triple its revenue to over $150 billion.

Where will the growth come from though? New user growth is slowing to a trickle, so they will have to increase the revenue that they get for each user. The low hanging fruit would be monetising WhatsApp, which is already in the pipeline.

I think most of the growth will come from selling more ads in the rest of the world. As it stands, North America is miles ahead in terms of revenue per user. I recently experimented with a friends' photography profile. I tested how many follows he received on Facebook from promoting a recent photo. I then promoted the same photo on Instagram and tested to see how many follows he received. Roughly speaking it cost around R10 a follow on Facebook and R20 a follow on Instagram. That is rather competitive when you consider that South Africa would be considered an 'unsaturated market'. For big companies to make a dent on social media, their spend will need to grow exponentially.

The data below is from Facebooks most recent quarter, you can see that the US & Canada has three times the spend of the second biggest region. There is no reason why Europe shouldn't get close to the ad spend of the US & Canada.



I want to test the reach of the Vestact daily message (and support a mate at the same time), so if you have 10 seconds please click here to follow the Instagram account. If you don't have Instagram, sign up and support your Facebook investment!