Facebook Inc (NASDAQ:FB) stock and a long list of other tech majors were in the red for a third consecutive day on Thursday morning as Wall Street looked counted down to the three-day Christmas holiday weekend. For some of the big names, like Apple stock, Thursday started to shift shares into the green, while others, such as Amazon stock, the downward slide continued.
Facebook Watch tab potential weighed
In a note to investors, Jefferies analyst Brent Thill offered his analysis of the Facebook Watch tab, which is the social media firm’s foray into video. The Facebook Watch tab was launched in August and added professionally-produced content from celebrities and big names and also new sports content.
Thill noted that the Facebook Watch tab extends the company’s reach into video consumption, and he expects it to not only drive engagement with videos but also other benefits for the company. He also pointed out that Facebook Inc (FB) has been “video first” for the better part of two years.
A Look Back At Warren Buffett’s Best and Worst Oil & Gas Investments
Warren Buffett is perhaps best known for his large investments in some of the world's most recognizable brands, companies like Coca-Cola, American Express and Apple. Q1 2020 hedge fund letters, conferences and more Companies that fit into this bracket seem to fall squarely within his circle of competence. They sell a product that's easy to Read More
He believes the Facebook Watch tab strategy can coexist with Netflix, Google’s YouTube and other companies that have been steadily increasing their spending on original content. He feels that Facebook’s strategy targets “lighter content,” while other services are focusing more on “premium long form content.”
Concern about margin compression
Thill also addressed something that has been a problem for Facebook Inc (FB) stock in recent years, which is potential compression of margins caused by investments in original content. Between the company’s “historically conservative guide,” revenue-sharing strategy with creators, and data-driven “content creation engine,” he’s confident that the company will be able to negate any major hit to margins in the near term.
He estimates that the Facebook Watch tab and the company’s other video-driven efforts will create a “halo effect across Core FB.” In fact, he expects the Facebook Watch tab alone to drive an extra $1 billion in revenue in 2019, with that amount increasing to $12 billion in 2022.
Notably, Thill isn’t the only analyst to focus on the Facebook Watch tab in a recent note. A few weeks ago, Morgan Stanley analysts approximated the social media firm’s spending on original content at $200 million next year, which is far below the $1 billion maximum that has been mentioned. They also looked at what the size of the content budget could do to Facebook stock, as investors have previously shown little tolerance for many of the company’s investments. Like Thill, Morgan Stanley analysts expect Facebook to easily recoup its investments in video.
A warning for Facebook Inc (FB) stock
Even more recently, MoffettNathanson analysts issued a warning for Facebook Inc (FB) stock, with the company’s video strategy being one of the potential reasons for concern. They pointed out that the Facebook Watch tab and the video strategy seem to still be a mystery because there hasn’t been much progress since mid-year.
Although the firm expects continued outperformance out of Facebook Inc (FB) stock, they also said that investors are becoming more skeptical about the company’s performance in 2018.
They added that if the current trends within the market continue, Facebook stock might underperform the S&P 500 in the fourth quarter, which is particularly notable since it would be just the third quarter it has done that in three years. However, MoffettNathanson remains bullish on Facebook stock, simply using the warnings in the note in a sort of devil’s advocate kind of way.
Facebook Inc (FB) stock was volatile on Thursday, ticking lower in morning trades before bouncing, falling and bouncing again between $177.25 and $178.45.