As Facebook pushes into video, analyst suggests an unexpected acquisition: Spotify

Facebook beats Street on mobile ad revenues
Facebook beats Street on mobile ad revenues

Facebook should be looking for acquisitions as it pushes into the highly competitive video space, and one formidable option could be music platform Spotify, analyst Richard Kramer said Thursday.

"Spotify, I think, would be a great fit," the senior analyst at Arete Research told CNBC's "Worldwide Exchange." "Activision might be another one, because gaming and music, along with video, are the big buckets of time spent."

The time spent by users on Facebook is critical to the social media giant's earnings, a majority of which come from its ad business.

Facebook reported better-than-expected earnings on the top and bottom lines Wednesday. Following the report, CEO Mark Zuckerberg fielded questions from analysts about the slow development of its video and virtual reality branches.

"The call was an endless series of repeated questions about video, which is still a very early phase for Facebook," Kramer said. "I think the question now is with $30 billion of cash, in which directions do they move? And I think video is only one part of what they're doing."

Facebook has devoted $7 billion in capital expenditures to building data centers and gearing up its video business, Kramer said. But the company faces abundant competition, he added.

"The problem with video is you're competing not just with all the traditional studios and networks, but also with Netflix, Amazon and potentially Apple, all of whom have stated the same aspiration to go and find the highest quality professional video content, and to capture that sort of all-important attention paid to video," he said.

Facebook's video first tactic faces competition
Facebook's video first tactic faces competition

But the company has other revenue streams it's likely to pursue in the coming years, Stifel Nicolaus analyst Scott Devitt said on Thursday.

"You could think of it from a tech architect standpoint, or building out virtual reality [and] artificial reality capabilities on top of Oculus Rift as being one component," Devitt said on CNBC's "Squawk Box."

On Facebook's analyst call, Devitt asked Zuckerberg if he could explain the "friction points that are keeping [Oculus] from a more accelerated commercialization path." The CEO responded that Facebook is still 10 years away from reaching its VR and AR goals.

"You could think of them protecting themselves over time as other businesses grow up on the consumer side, as they did with Instagram," Devitt continued. "You could also think of them acquiring, potentially, on the video side of the business or the music business as they build those platforms out."

Devitt is still sold on the social media giant's ability to innovate and grow.

"This is a $30 billion business with 50 percent operating margins that have never really existed in history on the consumer side, and so we like the stock quite a bit," Devitt said. "Our price target is $165 a share."

In premarket trading on Thursday, Facebook's stock was up nearly 0.9 percent, at $134.41 a share.