Facebook Continues To Prove It Can Monetize Its Users

Tigress Financial Partners said in a note Thursday Facebook Inc FB continues to prove it can monetize its users. The firm said the company's business performance continues to increase, driven by greater monthly and daily active users, which is fueling strong gains in advertising revenue.

Accordingly, the firm reiterated its Strong Buy rating on the shares of the company.

Analyst Ivan Feinseth is of the view that the company's massive user base, strong brand equity and incredible innovative ability has made it the world's dominant social platform. Specifically, the analyst noted that the company has over 2 billion MAUs and 1.3 billion DAUs and proprietary tools, enabling investors effectively target their best potential customers.

Innovation And Operational Efficiency To Fuel Growth

As more customers gravitate toward social media and continue to allocate more advertising dollars to social media, the analyst believes Facebook will experience massive growth in revenue and profitability.

Further, the analyst sees increasing shareholder return, greater economic profit and additional shareholder value creation, helped by the company's innovative ability to help advertisers better target customers and the ongoing increases in operating efficiency.

On Facebook's various platforms, Tigress Financial Partners noted that Facebook's mobile and live video initiatives continue to develop further user engagement, creative a more effective platform for advertisers. The firm also sees new revenue opportunity with its subsidiaries such as Messenger, WhatsApp and Oculus.

"The ongoing implementation of augmented reality/virtual reality (AR/VR) and artificial intelligence (AI) provide advertisers the ability to more efficiently target new customers," the firm said.

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The firm presented the following metrics for the last 12months ended June 30 to prove its point:

• Net sales: Up 49.7 percent to $33.17 billion, driven by increases in MAUs and DAUs.
• Economic operating cash flow: Up 53.2 percent to $25.49 billion.
• Net operating profit after tax: Up 114 percent to $13.15 billion.
• Return on capital: Increased to 22.36 percent from 13.38 percent.

Forecast For The Next 12 Months

• Net sales: To increase 34.2 percent to $44.51 billion.
• Economic operating cash flow: To increase 34.2 percent to $33.16 billion.
• Net operating profit after tax: To increase 30 percent to $17.1 billion.
• Return on capital: To increase to 31.39 percent.

Instagram: Evolving Growth Driver

The firm also noted Instagram is continuing to evolve as a key revenue driver, as the company has expanded its dynamic ad platform to Instagram and added features like Live and Boomerang to Instagram Stories.

Currently, Instagram photo-sharing app has over 700 million MAU and 400 million DAU and the Instagram Stories has 250 million DAUs, the firm noted.

Emerging Growth Drivers

The firm termed the opportunities to monetize Messenger, WhatsApp and Oculus as Facebook's next growth drivers. According to the firm, Chatbots and conversational commerce will be the key to monetizing Messenger and WhatsApp, as the company strives to train Chatbots using AI to interact with end users.

Additionally, the firm believes Facebook's massive balance sheet and strong cash flow will continue to drive growth.