A research note from Victory Anthony, an analyst at Topeka Capital Markets confirmed that Facebook Inc (NASDAQ:FB) has an in-house phone team, but the main goal of the company is unclear.
Is the social network giant building a phone? Anthony doubts the possibility, citing a previous statement from Mark Zuckerberg, CEO of Facebook Inc (NASDAQ:FB) that building a phone is a wrong strategy for the company.
The social network giant is inviting the media to attend its “Come and See What We’re Building” event, scheduled for January 15. Anthony speculated that Facebook Inc (NASDAQ:FB)'s announcement could be meaningful since it made the announcement the same time as the CES conference and 15 days prior to its earnings report.
The research analyst thinks Facebook would reveal its deeper integration with wireless carriers. In his research note to investors, Anthony wrote, “We have stated in the past that further monetization of mobile through partnership with the telecommunication companies is a possibility. The key here is for Facebook to forge strategic alliances with the telcos, have social functions built into the phones and receive a revenue share of the monthly user payments (we are thinking out of the box here). That would require the company to build more robust mobile interfaces and applications, but would negate the need to build their own OS and a Facebook phone.”
Anthony also cited speculations that the company might launch an auto play, video advertising product within the news feed. He noted that the Facebook had been testing video ads on the log-out page. According to him, the idea of auto play video ads makes sense because many users are already posting videos on their news feeds, thus users will not object to a video ad.
Based on data from eMarketer, online video advertising in the United States is estimated to be worth around $2.9 billion, and it is growing by 29% CAGR. The industry is expected to grow by $8 billion by 2016.
Anthony pointed out, “Advertising has historically followed eyeballs and FB have a billion pairs of eyeballs that should be attractive to advertisers.”
In addition, the research analyst predicted that the social network giant might expand its gifts service, which is a stepping-stone for the company to develop an e-commerce platform. Anthony estimates that Facebook will earn $800 million incremental revenues and $330 million incremental EBITDA from a broad e-commerce platform.
Furthermore, Anthony stated that Facebook Inc (NASDAQ:FB) does not need a press event to launch a social search engine because Zuckerberg already said the company is developing one. According to him, the company could generate $5 billion in annual revenues and $2.5 billion EBITDA from a search engine. This would add around $7 to $8 per share to FB stock value.
Anthony emphasized that Facebook Ad Exchange is a huge catalyst for Facebook in 2013. He reiterated his buy rating for the company. He believes that Facebook Inc (NASDAQ:FB) is a “must own core stock” in the media and internet sector.