While a new cryptocurrency initiative is generating much of the excitement on Facebook (FB) on Monday morning, analysts on Wall Street are possibly even more excited about the potential of its video streaming effort.
Shares of the social media giant rose over 4% shortly after the open, reaching their highest level since early May and extending an over 30% gain year to date.
Part of the optimism surrounding the stock reflects the numerous levers the company can pull across its ecosystem of Whatsapp, Instagram and Facebook that can be aided by new profitability drivers in payments and, evermore prominently, Watch.
"We launched Watch globally less than a year ago, and there are now more than 720 million people monthly and 140 million people daily who spend at least one minute in Watch," Paresh Rajwat, Director of Product Management and Matthew Henick, Head of Content Planning and Strategy, wrote in a blog post on the company's website. "On average, daily visitors spend more than 26 minutes in Watch every day."
The gain in engagement is supportive of the view that its Watch program could pose a significant challenge to the current leader in content creator-driven video, YouTube, which is owned by key competitor for ad spend Alphabet (GOOGL) .
That ad spend is key to driving even more profits for the company that has become commonplace in advertisers budgets across industries.
"The best way to bring great content to Watch is to create a sustainable, ad-supported ecosystem where every publisher and creator can reach their audience, make money from their videos, and thrive on the platform," the blog post stated. "Along with global expansion, the number of Pages actively using ad breaks has more than tripled over the past year - and the number of Pages earning over $1,000 in payouts per month has increased by more than 8X, while the number of Pages earning over $10,000 in payouts per month has increased by more than 3X."
Of course, those payouts to creators carry strong profits for Facebook as well. With more than 40 countries and numerous languages supporting this system, the effort is projected to ramp strongly in coming years.
"We see a path to Watch becoming a [more than] $5 billion annual business for Facebook in the next few years," Deutsche Bank analyst Lloyd Walmsley said. "We think Watch provides a leg of monetization that can sustain top-line growth in 2021 and beyond and give longer-term investors comfort in the sustainability of growth."
He acknowledged that scaling the platform could provide a drag on near-term profits as it threatens to cannibalize use of the flagship platform as well as its ancillary ad revenue streams, such as Instagram, and comes with the baggage of payouts to creators in order to steal market share from YouTube.
However, the long-term opportunity outweighs that short-term drag, in his view, as engagement is the real key at this early stage.
"We think Facebook Watch MAU can grow from about 30% of total Facebook [monthly active users] (MAU) today, up to 50% over time, or 1.2B MAU," Walmsley added. "We view this assumption as fairly conservative given the company is already at 720M MAU and has grown this at ~80% in the last six months alone."
Offering revenue to creators is simply part of courting usership away from other options at this point and will likely be shown to be a wise long-term move.
"Facebook remains our top idea in mega cap Internet, with a $220 target price," he concluded, suggesting double-digit upside remaining even after the recent recovery.
With earnings just over one month away, the path ahead for the video effort will be a key factor to monitor as cryptocurrency continues to carry the majority of headlines.