Subscription Groups Is Yet Another Billion-Dollar Opportunity for Facebook Stock
If you need another reason to buy and hold Facebook (NASDAQ:FB) stock for the long term outside of the fact that the company is the unparalleled leader in the secular growth global digital advertising market, here it is. The company has multiple growth levers, all of which represent billion-dollar opportunities for Facebook stock outside of core Facebook advertising.
Facebook Marketplace? Billion-dollar opportunity as digital commerce becomes more social and decentralized.
Facebook Workplace? Billion-dollar opportunity as enterprise social networking takes off like personal social networking has taken off.
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Instagram commerce? Billion-dollar opportunity as mobile commerce explodes in popularity, and trends in influencer marketing and visual-first advertising accelerate.
WhatsApp? Billion-dollar opportunity as Facebook monetizes the billion-plus users on the social messaging platform.
Messenger? Same story as WhatsApp.
In grand total, Facebook is really only scratching the surface when it comes to monetizing its 2 billion-plus users on Facebook, 1.5 billion users on WhatsApp, 1.3 billion users on Messenger, and 1 billion users on Instagram. Because of this, FB stock looks incredibly cheap trading at under 30 times forward earnings.
A potent example of Facebook’s far-reaching monetization potential is the company’s new Subscription Groups feature. For the first time ever, Facebook is allowing Group administrators on its platform to create mini-Groups with exclusive content and lock that content behind a subscription paywall that runs between $4.99 and $29.99 per month.
A subscription business on a platform with billions of users? Sounds like another billion-dollar opportunity.
It is a billion-dollar opportunity, and it is yet another reason to buy and hold Facebook stock.
Here’s a deeper look.
Subscription Groups Is a Great Idea
At its core, Facebook’s Subscription Groups is a great idea.
Content subscription businesses are the future. Netflix (NASDAQ:NFLX) has proven that the content subscription model is a financial dream because it lends itself to high-margin and annually recurring revenue streams, allows for rapid growth, and works because consumers are willing to pay monthly for access to good content.
So Facebook jumping into the content subscription business is a good thing. But it will work because Groups is a place where consumers will be willing for pay for content.
Facebook Groups had over 1 billion users two years ago, so it is a widely used feature of Facebook. Moreover, Facebook Groups tend to have content which is of high interest and value to the Group’s participants. Thus, it is only natural for Group admins to create exclusive content of greater value and lock it behind a paywall.
Not all of the Group members will pay up for that content, but some will. And with over 1 billion Group users, Facebook doesn’t need a lot of people to pay up in order for this idea to turn into something huge.
Moreover, the first few Subscription Groups seem like things that consumers would pay up for. Consider the Grown and Flown Parents Group, which will give parents access to college counselors for $29.99 per month, or the Cooking On A Budget: Recipes & Meal Planning Group, which will give members weekly meal plans and healthy tips $9.99 per month.
These Groups have strong value props at reasonable prices. As such, it is easy to see how adoption rates for these Subscription Groups will be high at the onset.
Another Billion-Dollar Opportunity
It isn’t hard to imagine how Subscription Groups could one day be a billion-dollar business.
Facebook reported 1 billion Group users back in early 2016, when Facebook had 1.6 billion monthly active users. Assuming a similar ~62.5% conversion rate from monthly users to Group users, then there are around 1.4 billion Group users today (Facebook has 2.2 billion monthly active users).
Let’s assume only 10% of those Group users pay up for exclusive content. That implies 140 million people paying around $17.50 per month (Subscription Group prices range from $4.99 to $29.99 per month), or an annual subscription payment opportunity of $29.4 billion. Assuming Facebook takes a 10% cut, then that implies an annual revenue opportunity for Facebook of nearly $3 billion.
That isn’t chump change.
Bottom Line on FB Stock
All is well in the Facebook kingdom. The company shrugged off the Cambridge Analytica scandal and reported its best earnings report ever. Management continues to pull rabbits out of the hat when it comes to billion-dollar monetization opportunities. Instagram is back to its Snap (NYSE:SNAP) butt-kicking ways and just crossed the 1 billion monthly active user mark.
Facebook stock has rallied to above $200 as a result of these tailwinds. But the valuation is still exceptionally reasonable at under 30 times forward earnings. As such, this rally in Facebook stock is far from over.
As of this writing, Luke Lango was long FB and SNAP.
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