In an ever-changing economic landscape, one thing remains the same: companies are always looking for the next big idea.
This holds true for the Wall Street giants. Facebook (FB) is on the hunt for multi-billion dollar opportunities, with it making its foray into the world of e-commerce with Facebook Shops. While this initiative has received quite a bit of Street attention, a less publicized opportunity could have big implications, according to Truist’s Youssef Squali.
The 5-star analyst tells clients that through Facebook Gaming, the social media player is going after the two leading gaming platforms, Twitch (Amazon) and YouTube (Google). It should be noted that Facebook Gaming was originally launched in 2018 as a separate platform, found on fb.gg, and then in 2019, the platform was transformed into a tab within the main Facebook app, making it more visible.
Getting a major promotion in April, the platform was released as its own mobile app on Android devices. “The iOS app version is still working its way through Apple’s approval process, which has been somewhat challenging perhaps in part because it may be perceived by Apple as competing with its app store gaming business...We note that Facebook Gaming has been separate from Oculus, Facebook's VR initiative, which also aims to build a gaming platform leveraging its hardware solution,” Squali added.
Weighing in on the potential opportunity, Squali commented, “With growth in engagement in game streaming at a record, we view this opportunity as strategic for FB to preserve/grow its audience, and leverage its unique scale and advertiser relationships to drive monetization... We estimate Facebook Gaming amounted to less than a $100 million dollars in FY19, but that over time it could grow to $1 billion-plus.”
Additionally, a new deal could help strengthen the platform. A few weeks ago, Microsoft revealed it would be shutting down its Mixer service and that Mixer’s streamers and viewers would be redirected to the Facebook Gaming platform. Founded in January 2016, Mixer, formerly known as Beam, was snapped up by Microsoft in August of the same year.
Squali opined, “Microsoft’s announcement was, in our view, the result of the company not achieving the desired MAU level to compete with much larger platforms, Twitch and YouTube. In return however, Microsoft will be working with Facebook to promote its future xCloud game streaming service, which enables gamers to click to play a game that is being streamed.”
In general, other analysts are on the same page. With 31 Buy ratings, 4 Holds and 1 Sell, the word on the Street is that FB is a Strong Buy. Meanwhile, the $294.31 average price target brings the upside potential to 8%. (See Facebook stock analysis on TipRanks)
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