For Facebook (META -0.52%) shareholders, 2014 has already been a banner year. With a year-to-date return approaching 43%, Facebook stock has performed admirably, to say the least. Continuing to announce stellar earnings, even compared to higher comparables quarter in and quarter out, has been more than enough reason to justify Facebook's stock results.
Of course, Facebook's steady climb in share value, comes with it the risk of over-buying and the inevitable drop in share price that follows. Unless the share price pop is based on a stock's fundamentals. When that's the case, as it is with Facebook, shareholders can expect continued growth. And there are several reasons longer-term Facebook investors can expect more of the same.
First, and foremost
About two-and-a-half years ago Facebook paid a whopping $1 billion for photo-sharing site Instagram. It was already growing rapidly when Facebook wrote its check, and Instagram was even becoming a social media site in its own right. But $1 billion for a site that had essentially no revenues? That left quite a few folks scratching their heads.
Facebook COO Sheryl Sandberg added to the Instagram angst this past April when she said it's moving "very slowly" in monetizing Instagram, adding that investors shouldn't expect much revenue from Instagram this year. That should be music to Facebook investor's ears heading into next year, and its run to $100 a share. Already, Instagram boasts over 200 million mobile monthly average users, or MAUs, with plans to reach as many 1 billion.
By comparison, Facebook wannabe Twitter (TWTR) has 271 million MAUs as of last quarter, a mere 16 million more than 2014's Q1. Twitter's slowing user growth has been a concern of investors for much of the past year, even as Instagram, and its parent, continues to soar. Instagram, once monetized using strategically placed ads using Facebook's wealth of user data, along with the next driver of growth listed below, will add significant, incremental revenue to Facebook's topline.
Long live video
Facebook investors need look no further than its primary digital advertising competitor Google (GOOG 0.74%) (GOOGL 0.55%) to get a sense of how lucrative video advertising will be. Though Google doesn't break out YouTube revenues as a separate line item, estimates place the figure at about $5.9 billion this year, and nearly $9 billion next year. Why? Video works, and marketers are willing to pay significantly for ads that work.
In terms of getting video ads out to the masses, Sandberg stated earlier this year that video ads wouldn't be rolled out across its site until they got them "right." When Facebook's video as are "right," it will help drive Facebook's share price up to, and past, $100 a share next year. For investors, the good news is the testing of video has already begun, and rumor has it advertisers are paying Facebook as much as $1 million a day for the privilege. Imagine the revenue impact next year when Facebook's video ads go mainstream?
The small, but mighty, acquisition
Somewhat lost in all the acquisition excitement this past spring -- $19 billion for WhatsApp and $2 billion for Oculus -- was the $20 million Facebook spent on Ascenta. Based in the U.K., Ascenta is a solar-powered drone consultant Facebook intends to use as its entry into emerging markets. When Facebook CEO Mark Zuckerberg introduced his Internet.org initiative to the world, he said the plan was to help get the 70% of the world's population not connected to the Internet, online. A noble effort, to be sure, and using drones to beam Internet services to regions like Zambia is an ideal solution.
Of course, the ancillary benefit to Facebook and its investors is growing its already impressive 1.32 billion MAUs, and the associated ad revenues that come along with that growth. But emerging markets each have different infrastructures, which could make it difficult for advertisers who want to beam video spots, for example, when users don't have the connection speeds to make them viable.
The answer? Facebook's new Ad Create tool, which automatically adapts an ad to suit each regions connection speeds. Let's say a user in southern Africa isn't able to download video because of his or her sluggish Internet connection; Ad Create will automatically replace the video with an image, negating any "buffering" the user would have otherwise experienced. Facebook's getting ready for emerging markets, and its $20 million deal for Ascenta could be the impetus for both user and revenue growth soon.
Final Foolish thoughts
To top things off, Facebook is currently trading at a mere 38 times forward earning projections. For a high-growth stock that's performed as Facebook has in the past year, that's certainly not unreasonable. In fact, it could be argued that's a downright bargain. Now, add in the multiple ways Facebook will continue driving revenue growth next year, and beyond, and $100 a share looks like a slam dunk.
