Facebook Inc. (FB) entered a crowded space with its push into video and content, but it could be a multi-billion-dollar business in five years if Jefferies & Co.’s forecast proves true.
In a research report this week, Jefferies analyst Brent Thill argued that Facebook’s efforts in video will pay off as it enhances the engagement level on the part of users and draws even more advertising dollars its way. Thill, who rates Facebook a buy with a $225 price target, thinks the Watch Tab, where Facebook houses its videos, could be a $1 billion business by 2019 and a $12 billion one, accounting for 12% of revenue at the social media company, by 2022.
Earlier this year, the company launched Watch, its streaming TV service, committing to spend up to $1 billion per year on original video programming as tech giants such as Netflix Inc. (NFLX) and Amazon.com Inc. (AMZN) compete to grab a share of the booming market. (See also: Google and Facebook's Growing Ad Dominance Calls for Caution: Pivotal.)
Keeping It Short
The way Thill sees it, Facebook’s strong suit will be in short-form pieces that are centered on smaller production teams and budgets who create stories about communities, sports and life experiences. That focus on shareable experience-type videos will enable it to stand out, argues the analyst. “Investors ask us why would Facebook enter into the crowded content spend space when you have traditional players growing their content spend as well as new digital first entrants such as Netflix, Apple and YouTube also spending billions to produce proprietary content,” wrote Thill in the research report, which was covered by Barron’s.
“Facebook’s spend dwarfs in comparison to peers like Disney (7x) and Netflix (4x). We see a space for Facebook’s video in the crowded market landscape as more of a lean-in and shareable experience outside of the largely scripted content spend going on at competitors.” (See also: Why Google, Facebook Will Outperform FAANGs: Meeks.)
But it's not just about engaging users. Thill said Facebook is also in the best position to generate more advertising dollars from its video push and can use its vast amount of data to tailor content to specific users. It has also inked deals with publishers to bring short video content to its social network via revenue sharing agreements, noted the analyst.