A deal with Facebook Inc. (Nasdaq: FB) brought the little-known Knowles Corp. (NYSE: KN) to investors' attention today, boosting Knowles Corp. stock by 2.3% as of 12:30 p.m. today (Oct. 30, 2017).
But investors hoping to profit from the news should stick to buying Facebook stock...
Knowles Corp., a manufacturer of audio-processing equipment, won a deal to provide Facebook with audio components for its "Aloha" video chat device, according to Investing.com. Aloha will have a wide-angle camera, microphones, speakers, and can recognize faces.
The device will also let users connect their Facebook accounts to schedule video calls with their friends, according to an Aug. 25 Business Insider report. The device is expected to retail for $499.
Specific details on the Knowles/Facebook deal and how much it's worth are unavailable, but the news sent the Knowles Corp. stock price up 2.3%.
But no matter how much revenue the deal nets Knowles Corp., we had to make sure Money Morning readers aren't missing the bigger profit opportunity.
The small 2.38% pop today for the KN stock price is nothing compared to the potentially conservative 39.46% gain FB shareholders could net over the next three years...
FB Is the Stock to Own Despite the Knowles Corp. Stock Price Pop
If you have a Facebook account or Facebook Messenger, you can use the new hardware device to make a video call with your friends so you aren't tied down to your computer.
The device will be easily transportable, so you can talk to your friends in your kitchen while you're cooking or even take it with you on vacation.
This can make video chatting more convenient and gives Facebook users a new way to interact.
But the real genius of Aloha is it will create new advertising revenue for Facebook through original content and video chat calls...
We still don't have all the details on how the device will work. But with video capabilities, Facebook could use it to show its original programs. The tech giant will spend up to $1 billion on original video content in 2018, according to a Sept. 8 report from The Verge.
If Facebook can just get 20% of its 2 billion monthly active users (MAUs) to watch a show or event on Aloha, that's an audience of 400 million people for advertisers to potentially reach.
In comparison, the 2017 Super Bowl reached 111 million people. Advertisers were charged between $5 million and $5.5 million for a 30-second ad, so advertisers may be willing to pay even more to reach a larger audience.
Also, Facebook could charge companies to "sponsor" the video chats between users, placing an advertisers' logo somewhere in the chat.
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Again, the full capabilities aren't known, but this is another one of Facebook CEO Mark Zuckerberg's forward-thinking ideas that Wall Street doesn't understand just yet.
And it's ideas like these that are going to net shareholders double-digit gains in the next three years...
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By 2020, Money Morning Director of Technology & Venture Capital Research Michael A. Robinson projects the FB stock price will reach $250 per share.
He has two reasons why...
First, Instagram, the picture app acquired by Facebook in 2012, will see its revenue skyrocket.
In 2016, Facebook generated between $650 and $750 million in revenue from Instagram. In 2021, research site Statista projects Instagram will generate $9.5 billion in revenue. That's potentially more than 1,000% growth in revenue.
Second, Facebook will also generate billions in revenue from its virtual reality (VR) company, Oculus VR.
Zuckerberg paid $2 billion for Oculus VR in 2014, but it will soon pay for itself. By 2020, research company Tractica believes $21.8 billion will be generated from sales of VR head-mounted displays, VR content, and VR accessories.
The Facebook stock price has vastly outperformed the Dow in 2017, climbing 56.25%. In comparison, the Dow is up just 18.21%.
And we expect these marketing-beating gains to continue...
"There is no question in my mind at this point that Facebook will hit $250. The only question is when, and 2020 strikes me as a solid forecast at this point," Robinson said.
From today's opening price of $179.26, that's a potential profit of 39.46%. And while that's Robinson's prediction for 2020, that doesn't mean the Facebook stock price would stop climbing after it hits $250.
If there are two things Zuckerberg knows, they're how to scale a business and how to make shareholders a ton of money along the way.
The Bottom Line: The Knowles Corp. stock price today is climbing 2% because it struck a deal with Facebook for audio components for Facebook's Aloha video device. However, the real story to focus on is Facebook using the audio components to build out a hardware device that will generate more revenue. Not only will Facebook net a profit from the hardware sales of the $499 device, but it will attract more advertising revenue for video content.
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