You probably know Piper Jaffray's Gene Munster as the esteemed analyst who is very bullish on the prospects an Apple Inc. (NASDAQ:AAPL) TV, but he was making a somewhat surprising prediction about Facebook Inc (NASDAQ:FB) yesterday on Bloomberg TV.
On the "Bloomberg West" program, Munster discussed the social network's prospects in the field of e-commerce, which we've covered quite a bit recently (see how Facebook users can now 'gift' Apple iTunes content). As noted by the show's hosts, Munster and his team issued a new report that states he believes Facebook can make "$10 billion in commerce-related revenue by 2015." On the prediction, Munster defines commerce-related revenue as the "ability to create demand offline," mentioning that "Google is the best example" in this regard.
When explaining his reasoning behind this bullish forecast, the noted analyst says that a "big piece" of the puzzle is a 'Want' button - similar to the 'Like button - that Facebook Inc (NASDAQ:FB) "has tested [...] with six retailers," noting that "there've been some reports out of the UK from their Head of Retailing that they're going to go full force with the 'Want' button in 2013."
When asked if investors should start to group Facebook with e-retailers like Amazon.com, Inc. (NASDAQ:AMZN) and eBay Inc (NASDAQ:EBAY), Munster didn't go as far as some would think, however, having this to say:
"I think that it's still going to be an advertising company for the next couple years; I think that the commerce part will slowly layer into it. We kind of think of this longer term to be 30 or 40 percent of the business - the commerce side of it - so still more than 50 percent will be more ad-based."
Looking at Facebook Inc (NASDAQ:FB)'s last earnings results, the company did rather well on the advertising side, coming in with Q3 revenues of $1.26 billion versus $1.23 billion estimates, and a 36% growth in YOY advertising revenues, up eight percentage points from Q2. Mobile is especially important to the company, as sales in this arena now make up one-seventh of the total advertising dollars.
On the subject, Munster believes that "the stock didn't react as much as you would expect it, because of this lock up [...] at the end of the day [...] they've had great traction with mobile," adding that despite the fact "they've been really saturating your News Feed with these [sponsored] ads [...] surprisingly, the usage really hasn't been impacted [...] and that's really encouraging for investors."
To conclude, Munster mentioned that he feels the "heavy lifting" of the e-commerce expansion will be done by third-party developers, leaving Facebook Inc (NASDAQ:FB) to "collect their paychecks."
While it remains to be seen just how prosperous a potential 'Want' button would be for Mark Zuckerberg and Co., Munster makes some key points, especially in regard to just how much Facebook will rely on this area of their business. We're encouraged by the company's potential ability to grow its mobile advertising over the next few years as well, so investors' concerns over a lack of revenue diversification can be softened.
Has Facebook Inc (NASDAQ:FB) finally found a perfect compliment to its ad-based business with e-commerce? Is Munster's $10 billion figure too bullish, bearish, or just right? Don't hesitate to share your thoughts in the comments section below. To continue reading about the social media giant, check out yet another way how Facebook could make billions with its Connect platform. Enjoy.