Laura Martin, Analyst at Needham & Company, LLC, recommends buying shares of Facebook Inc (FB). Her thesis is that Facebook’s valuation should be calculated as an option to generate revenue from 1.3 billion people, which was its total reach in 2014. Martin particularly likes Facebook’s strategy of making personalization and video acquisitions.
“Specifically, we think the WhatsApp acquisition was a good move, because it offers a different form of revenue and an option on 500 million people in largely non-overlapping countries to Facebook,” Martin says. “We also like that the revenue stream from WhatsApp, which is subscription, is different than advertising — Facebook’s only revenue stream today.”
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Martin says that revenue diversification in the form of a second revenue stream, like the one Facebook acquired with WhatsApp, typically expand a company’s multiple by three points.
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