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Can Facebook Achieve Stellar Revenue Growth?

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Facebook's (NASDAQ: FB  ) overall engagement continues to rise, and the great thing is that the company commands a significant share in the mobile market. Facebook made history this October, when it announced a 60% increase in revenue. In order to justify its $120 billion market valuation, Facebook is expected to increase its revenue next year to $10.4 billion. Can the social network achieve this stellar revenue growth?

A disruptive force
Facebook will eventually be able to raise the bar on search. Graph Search, which has been designed to give natural answers to queries, is a work in progress. The search engine ramps up Facebook's competition with its rivals. Facebook says you can use Graph Search to find more of the people you're looking for through connections. It has the potential to become a disruptive force in the search engine space. Eventually, it will be a revenue-generating solution for Facebook.

Geographical diversification 
Facebook should benefit from international growth, because the U.S. represents less than 20% of total traffic, but almost 50% of overall revenues. International markets provide a greater opportunity for the company. Additionally, Facebook has been focusing heavily in Japan, as well as building up its local presence. Facebook can leverage its products in Asia and the Middle East, and push for ad sales in Europe. Given the gap between the company's monetization levels in international markets, there is a great opportunity for Facebook to grow.

Advertising age
Now that Instagram has entered the advertising age, Facebook can start benefiting from it. Investors can expect that Instagram's 150 million monthly average users will bring in about $606 million a year. However, Instagram's additional significance could be how it provides Facebook with better insights among younger users. If Instagram can improve Facebook's adaptability, it could increase revenue-generating opportunities.

Let's not lose sight of the fact that Facebook isn't the only one operating in the promising social network market. With about 200 million users, Renren (NYSE: RENN  ) provides exposure to a Chinese social network. Renren isn't strictly an advertising company, but it is skilled at using its social network to promote gaming. It is turning its attention to the mobile Internet and is now dedicating 45% of the workforce to mobile development. The products Renren is betting on are the smartphone version of the social network and mobile gaming.

LinkedIn (NYSE: LNKD  ) did grow its membership by 38% to 295 million users. However, due to the increasing relevance of competitors, it is becoming difficult to justify its valuation. It recently launched two new mobile products. The first is a mobile extension of its desktop tool. The second  will be offered on Apple's iOS. With these products, LinkedIn will hope to mimic mobile user growth enjoyed by Facebook.

The bottom line probably lies in Facebook's ability to enter new segments and launch innovative applications. Acquisitions could be crucial. For example, the purchase of  Monoidics will allow Facebook to improve quality control of applications. Over the long term, quality improvements have the potential to drive revenue growth because they allow the user experience to be rich and valuable. Ultimately, one in seven people on Earth has a Facebook profile. With the world population expected to reach nine million in the next 12 years, Facebook's user base is expected to increase, and so is the company's potential to achieve stellar revenue growth.

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Related Tickers

9/30/2016 4:00 PM
FB $128.27 Up +0.18 +0.14%
Facebook CAPS Rating: ***
LNKD $191.12 Up +0.25 +0.13%
LinkedIn CAPS Rating: ***
RENN $2.06 Up +0.15 +7.85%
Renren CAPS Rating: *