Facebook Inc.’s (NASDAQ: FB) market cap rose $40 billion to $340 billion during the first quarter as investor sentiment moved sharply in the direction of the world’s largest social network.
Among the three most powerful reasons the stock has gone so much higher are earnings, its aggressive move into the virtual reality business and the space it has put between itself and other social media companies in revenue and user count.
Several research firms have pointed out the virtual reality product sales will rise into the billions of dollars in the next five years, and that Facebook will have a dominant position in the industry. According to Barron’s, Cantor Fitzgerald’s Youssef Squali wrote in a note to investors:
Assuming Facebook’s Oculus unit can sell 11 million headsets by 2020, and a whole bunch of software and software royalties by then, it could mean $7 billion in new revenue for the company.
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Facebook bought Oculus for $2 billion a year ago.
Facebook management says it has over 1.6 billion members and over a billion log onto the service daily. It has successfully migrated its users to mobile, important because so many people now use mobile devices as their sole access to the Internet. Companies that include Twitter Inc. (NYSE: TWTR) also have moved to mobile but have yet to demonstrate they can draw much money. Facebook appears to have the lion’s share of mobile advertising, along with Alphabet Inc.’s (NASDAQ: GOOGL) Google.
The most obvious evidence of Facebook’s dominant position in the social network space, but still worth repeating, is its size based on revenue and earnings growth. Facebook’s full year 2015 revenue was $18 billion in 2015, against $12.5 billion in 2014. Net income was $3.7 billion, up from $3 billion in the same period a year earlier. The consensus among analysts is that revenue will reach $25.5 billion, a 42% increase from 2015.
If anything, Facebook’s advantages as stated above should grow as the year passes.
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