Much has been made about Facebook's mobile revenue growth. But, according to Dan Niles, Senior Portfolio Manager at Alpha One Capital Partners, Facebook has other opportunities ahead which could be even bigger.
Niles believes that Facebook's current growth – as well as what lies ahead – justifies its valuations, even when compared with older media companies like Time Warner Cable [CNBC's parent company, Comcast, has struck a deal to purchase Time Warner Cable for $45.2 billion].
"You have to look at its valuation relative to its growth rate," says Niles. "Their valuation is actually pretty good. If you look at Time Warner [Cable], their revenue growth in 2013 was 4% year-over-year for their revenues. If you look at Facebook, their [revenue] growth rate in 2013… was 55%."
It's not just Facebook's high growth rate that's important, according to Niles, but also the fact that growth rate has been accelerating. The company's first-quarter growth rate was 38% compared to the previous year. By the fourth-quarter, it was 63%.
But Facebook has at least one thing ahead that could be a game-change for the company, says Niles. "A big opportunity lies ahead as they move into video advertising," he says, "which they really don't get much revenues from today."
"In 2013, total advertising globally was about $700 billion," says Niles. "TV adverting out of that number was about 240 billion and, in the US, it's $80 billion in size… [Facebook] just started exploring a lot of that in Q4 in that launched some advertising on Instagram and they started testing video ads on the Facebook platform with brand marketers in [the fourth-quarter]. And, I think that the big driver for the next couple of years is moving into video."
Niles also thinks that while last year may have been a bubble for Internet stocks, this year will see a separation of the wheat from the chaff. To see the rest of Niles interview on what's next for Facebook and other big Internet companies, watch the video above.
More from Talking Numbers: