Facebook's (NASDAQ:FB) IPO was five years ago this month. Some investors may remember the stock didn't fare too well right from the get go. In fact, shares traded below the IPO price for their first 14 months on the Nasdaq.
In September 2012, right around when Facebook shares were trading at an all-time low, CEO Mark Zuckerberg did an interview with TechCrunch. While investors were pummeling the stock as the company struggled to figure out mobile, Zuckerberg saw the growth of mobile as something that would benefit Facebook immensely. "I think it's easy for a lot of folks ... to really underestimate how fundamentally good mobile is for us," he said. He went on to detail why he thought that, and everything he said turned out to be exactly right.
More users, more engagement, more ad revenue
The mobile internet has completely changed how we access the internet, and it's enabled hundreds of millions of people to gain access in just the last decade. Even the five years since Zuckerberg's comments have seen tremendous growth in the internet population.
As the internet population grew, so did Facebook's mobile users. Zuckerberg noted there are simply more people on mobile than on desktop, and that's been reflected in the company's user growth since that interview. Mobile monthly active users grew from 680 million at the end of 2012 to 1.74 billion at the end of 2016. What's more, the number of people accessing Facebook strictly through mobile devices has climbed from 157 million to 1.15 billion. If it weren't for mobile, Facebook wouldn't have nearly as many users as it does today.
On top of having more users, Zuck asserted people are able to spend more time on mobile Facebook than the desktop version. Since mobile devices are with us all the time, we can open up the Facebook app whenever we have 5 minutes to spare. Indeed, average time spent per users has steadily climbed, with the company most recently reporting an average of 50 minutes per day per user about a year ago. CFO Dave Wehner said the number is still going up in 2017, but didn't give any specifics. More time spent per user means more advertising opportunities.
Finally, Zuckerberg said the company's new (at the time) News Feed ads would allow the company to generate more revenue per user minute on mobile than it did on desktop. Facebook's previous ad product was the simple right-hand column display ads that users still see today. Facebook didn't get around to rolling out its native News Feed ads until after its IPO. Those ads produce significantly higher average ad prices, so Facebook actually now makes more money per ad impression on mobile than on desktop (all else being equal).
In the first quarter of 2017, mobile advertising accounted for 85% of the company's total ad revenue. When Zuckerberg made his comments five years ago, mobile ads made up just 14% of ad revenue. To say Mark Zuckerberg was spot-on with his prediction may be an understatement.
What Zuckerberg says about the next five years
After proving the naysayers wrong about Facebook's mobile challenge, there are two main areas Zuckerberg is very bullish on that many investors and analysts remain skeptical about.
First, video on Facebook. Facebook users watch tons of video on Facebook already, but Zuckerberg and Co. are doubling down on video with a dedicated video feed.
Not only that, the company is seeding it with premium content that costs millions of dollars. "I think you're going to start in the future getting people coming to Facebook ... with an intent to go to the video tab to watch specific videos," Zuckerberg said on the company's first-quarter earnings call.
Second, Zuckerberg expects virtual reality (VR) to be the next big computing platform. He thinks it will take about 10 years for the platform to become mainstream, and Facebook is investing heavily to help get it there. Skeptics say the platform will never appeal to anyone beyond hardcore gamers and tech enthusiasts.
If Zuckerberg is wrong, the company could waste billions trying to get VR off the ground in the next decade. If he's right, it could add meaningful revenue to Facebook's already massive top line.
It's easy to write off Zuckerberg's predictions. The company has just as much pressure to grow earnings today as it did five years ago when he said mobile was a massive opportunity. Still, to say Facebook will never succeed as a destination for video, or VR will never go mainstream, underestimates just how smart Mark Zuckerberg is.