The Wall Street Journal recently reported that Instagram, a Facebook Inc (NASDAQ:FB) owned property, is jumping into the world of long-form videos.
To be clear, this is a big deal for Facebook stock.
Previously, Instagram feed videos were limited to 60 seconds, while Instagram Stories videos were limited to 15 seconds. Those restrictions limited the use-cases of Instagram video to short-form, friend-to-friend, quick consumption interactions, much like Snap Inc (NYSE:SNAP). Eradicating those restrictions, however, widens Instagram video’s use-case, and gives the platform YouTube-like qualities in addition to its core Snapchat-like features.
From this perspective, Instagram long-form video is a potentially $100 billion-plus move that could send Facebook stock materially higher.
Here’s a deeper look:
Why Instagram Long-Form Video Is a Big Move
The single largest mega-trend in social media is digital video. With Instagram jumping into long-form videos, the photo and video sharing platform is now capitalizing on all aspects of this mega-trend.
Consumers are tired of boring and dull word-dominated posts. Instead, they want fresh and exciting visual-dominated posts. That is why the three most popular social media apps among America’s youth are YouTube, Instagram and Snapchat. Not surprisingly, all of them are digital video-based.
Right now, Snapchat and Instagram operate on the same playing field. They are social-based, photo- and video-sharing platforms that foster quick visual communication and life updates. That market has proven to be of tremendous value, as Instagram’s monetization ramp has been hugely successful while Snapchat remains one of the most popular apps among America’s youth.
But YouTube operates on its own playing field of delivering long-form videos from bloggers, influencers and other stars to their followers. This market has proven to be equally valuable. YouTube is the most used app among America’s youth, and its parent company, Alphabet Inc (NASDAQ:GOOG)(NASDAQ:GOOGL), has an $800 billion market cap.
Instagram jumping into long-form video means that the photo-sharing platform is jumping into the valuable market which YouTube presently dominates. And that is a great news for Facebook stock. Bloggers, influencers and other stars will unequivocally start posting long-form videos on Instagram. That will increase engagement, widening reach and creating more monetization opportunities.
How valuable is this move?
Very valuable. Three years ago, Bank of America Merrill Lynch speculated YouTube’s value to be more than $70 billion. Google’s value has more than doubled over the past three years, so it’s likely YouTube is now worth about $150 billion or more.
In other words, Instagram long-form video introduces a $150 billion and growing market opportunity for Facebook.
Why Facebook Stock Is Still Undervalued
Instagram long-form video is just one of many growth catalysts Facebook stock has through expansion in tangential markets.
Facebook Dating is coming. Match Group Inc (NASDAQ:MTCH) has an $11 billion market cap on a far smaller user base. Thus, Facebook Dating could easily add $15 to $20 billion in market value.
Facebook Marketplace has yet to reach full potential as a consolidated e-commerce marketplace for buyers and sellers of all shapes and sizes. The most suitable comp, eBay Inc (NASDAQ:EBAY), has a $40 billion market cap.
Facebook Watch also has yet to reach full potential as an ad-supported digital video arm of Facebook. It is tough to find a direct comp for Facebook Watch. But even if Facebook converts only half of its users to Watch (1 billion) and gets an annual ARPU of just $5, that is a $5 billion annual revenue opportunity.
All together, through growth in tangential markets from things like Instagram long-form video, Facebook Dating, Facebook Marketplace, and Facebook Watch, Facebook stock stands to add hundreds of billions of dollars in market value.
And that doesn’t even touch monetization of WhatsApp and Messenger, two social communication platforms with well over a billion users each.
Moreover, this is all in addition to the current Facebook and Instagram advertising machines, which together are powering 50% and rising revenue growth.
Bottom Line on FB Stock
Instagram jumping into long-form video is a big deal that presents a $100 billion-plus opportunity for Facebook.
But it isn’t the only catalyst powering Facebook stock over the next several years. Between Instagram eco-system build-out, Facebook multi-purpose build-out, and WhatsApp/Messenger monetization, Facebook could add hundreds of billions of dollars in market valuation over the next several years.
As of this writing, Luke Lango was long FB and GOOG.
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