Facebook's Food Order And Delivery Services To Boost Growth

Facebook Inc. (NASDAQ:FB) ) recently announced that it has partnered with several restaurants and food ordering services to enable U.S. users to order food through the platform.

Per Alex Himel, Facebook’s vice president of Local, the company has been “testing this since last year” and has finally rolled out the service in the United States on Apple’s (NASDAQ:AAPL) iOS and Alphabet’s (NASDAQ:GOOGL) Android devices as well as on desktops.

Reportedly, Facebook users can avail the feature through the “Order Food” section in the “Explore” menu. Users can also view reviews and recommendations about a restaurant by friends.

Per the company, it has teamed up with restaurants like Papa John’s, Wingstop, Panera, Jack in the Box, TGI Friday’s, Denny’s, El Pollo Loco, Chipotle, Five Guys and Jimmy John’s.

The company has also collaborated with food ordering services like Delivery.com, DoorDash, ChowNow, Zuppler, EatStreet, Slice and Olo to facilitate the service.

We believe these initiatives will significantly boost Facebook’s user base and draw more advertisers to its platform. These will also help to sustain the share price momentum. Notably, Facebook has gained 53.1% year to date, substantially outperforming the industry’s 27.7% rally.

Efforts to Monetize the Platform

The company’s user base continues to grow at a significant pace driven by new features and tools that improve engagement. As we know, an increase in users will translate into higher advertising revenues for Facebook.

The company has witnessed significant traction in online and mobile advertising spending in a short span of time. In the second quarter of 2017, ad revenues grew 47% year over year to $9.2 billion while mobile ad revenues were up 53% to $8 billion. Most importantly, average price per ad increased 24% from the year-ago quarter. Moreover, ad impressions grew 19% due to an increase in mobile impressions.

The increase in mobile advertisement stems from the fact that mobile ads have far more ad recall value than other mediums. Since marketers are moving to mobile to target customers, Facebook is enthusiastically monetizing this shift.

Market research firm eMarketer expects U.S. digital advertising market to grow 16% year over year to reach $83 billion in 2017. Digital video advertising is also anticipated to witness annual double-digit growth through 2020.

Moreover, per advertising agency Zenith Optimedia, social media advertising is anticipated to outperform newspaper advertising by 2020.

However, increasing competition from other big and small social media players can hurt Facebook’s top line, going forward. Although the company has started distributing ads on other websites, we believe that Google continues to have a significant competitive edge due to its scale and diversified product offering.

Further, Snap’s (NYSE:SNAP) messaging application Snapchat offers tough competition as far as user growth (especially teenagers) is concerned.

Zacks Rank

Currently, Facebook sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.

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