As the unofficial board’s resident Facebook bull, asking a question about Facebook is akin to Batman seeing his light shine above Gotham. I will be sure to show up
I should also note that, like Saul, I suspended my account years ago. Not for the same reasons, but I just found it was sucking away too much of my time. Even now, on the rare occasions I surf my wife’s feed, I could easily lose a half hour or more just by checking it “real quick”. So, as promised, here is my bullish case for Facebook.
First, I do not think Facebook is a one-trick pony whose only way to a higher market cap is through advertising revenue. Of course, let’s just acknowledge Facebook’s incredible advertising prowess. This was written by Josh Brown last April, but it still holds true today:
The Super Bowl is the most widely watched event in the world, and it’s because roughly 100 million people watch it. Facebook wouldn’t get out of bed for that kind of nightly audience. And think of the dollar amounts that the Super Bowl commands for thirty-second ads. Facebook’s usage is more than 10X the Super Bowl and it’s 24 / 7 / 365.
And here’s the best part – no one expects to be paid anything to create content for the platform. We’re the football players. We’re the announcers. We’re the cheerleaders. We do it for free, out of the sheer joy we experience from the exposition of ourselves. And we never get bored of it.
Value that.
From http://thereformedbroker.com/2016/04/28/the-new-religion/
And think about this: Facebook has over 4 million advertisers on its site. 4 million! And while, yes, Facebook’s ad load is near maximum capacity, Instagram and Video are just getting started! Facebook is still in the beginning phases of experimenting with ads on videos. This news is from a couple of weeks ago:
Industry sources say the social network is going to start testing a new “mid-roll” ad format, which will give video publishers the chance to insert ads into their clips after people have watched them for at least 20 seconds.
For now, Facebook will sell the ads and share the revenue with publishers, giving them 55 percent of all sales. That’s the same split offered by YouTube, which dominates the online video ad business.
If the new ads take off, they could represent the first chance many video publishers have had to make real money from the stuff they’ve been running on Facebook.
From http://www.recode.net/2017/1/9/14211466/facebook-video-adver…
Facebook’s video ads are still in the early innings.
As for Instagram, ad revenue is projected to jump by about 50% this year:
It was just September 2015 when Instagram opened up advertising opportunities. However, the company is on track to bring in more than $1.85 billion in ad revenue this year, and that revenue is predicted to rise to $2.73 billion in 2017. Similarly, a poll of U.S. marketers conducted by Advertising Age and RBC Capital Markets found that 30 percent of respondents were currently leveraging Instagram advertising and an additional 31 percent plan to do so in 2017.
Working in Instagram’s favor is its ownership by Facebook, making it easy for advertisers to simply extend their existing Facebook advertising buys across the photo-sharing platform. Instagram hasn’t broken through, yet, as a leader in video content or video advertising, but considering Facebook’s emphasis on it, you have to assume a pivot in focus is coming. Brands also are investing heavily in influencer marketing on Instagram, upwards of $500 million a year, by directly paying influencers to promote their products there.
From https://www.memphisdailynews.com/news/2017/jan/4/marketers-w…
And Instagram already has 500K advertisers on its site. Instagram ads are also still in early innings.
And I know I already linked my article, but I do believe Facebook has a real potential in e-commerce through its two messaging apps, Messenger and WhatsApp. From the article:
During Facebook’s 2015 fourth-quarter conference call, CEO Mark Zuckerberg was asked point-blank by a Bernstein analyst what his thoughts were about the role of the different Facebook platforms in payments. Zuckerberg replied, “We don’t view ourselves as a payments business, that’s not the type of company that we are.” Instead, Zuckerberg said, Facebook wanted to partner with “everyone” in the payments industry to work at removing the friction from business transactions.
Of course, actions are more important than words, and investors should take notice that Facebook has followed up on its stated desire of creating partnerships with existing payments companies. In October 2016, Facebook and PayPal entered into an agreement that should prove to be mutually beneficial to both companies. The deal calls for PayPal to become a payment option across more of Facebook’s platforms, including commerce activity on Messenger. It’s also easier now for users to link their PayPal accounts to the site.
The deal does exactly what Zuckerberg said Facebook wanted: To make the process of buying and selling goods online smoother and easier.
Facebook’s sole focus seems to be growing its platforms’ universes and making them even more all-encompassing. Moving beyond the world of advertising and creating the ability to process transactions is just a natural step in that direction
From http://www.fool.com/investing/2017/01/15/investors-should-ta…
Finally, there is Oculus. I do not know whether Oculus will ever have a material impact on the company’s earnings, but if virtual/augmented reality takes off, it could.
Oh, and the company’s numbers just look great:
Revenue (billions) Q1 Q2 Q3 Q4
2013 1.458 1.813 2.016 2.585
2014 2.502 2.910 3.203 3.851
2015 3.543 4.042 4.501 5.841
2016 5.382 6.436 7.011
EPS (non-GAAP) Q1 Q2 Q3 Q4
2013 0.12 0.19 0.27 0.32
2014 0.35 0.43 0.43 0.54
2015 0.42 0.50 0.57 0.79
2016 0.77 0.97 1.09
EPS (GAAP) Q1 Q2 Q3 Q4
2014 0.30 0.25
2015 0.18 0.25 0.31 0.54
2016 0.52 0.71 0.82
2016 Q3 Earnings (Current):
Revenue Growth (billions)
2015 Q3 TTM Revenue = 15.94
2016 Q3 TTM Revenue = 24.67
Year Over Year Revenue Growth = 54.8%, previous quarter 51.4%
EPS Growth (GAAP)
2015 Q3 TTM Earnings = 0.99
2016 Q3 TTM Earnings = 2.59
Year Over Year GAAP EPS Growth = 162%, previous quarter 112%
GAAP P/E (Check Current Price) = 120.77/2.59 = 46.63
GAAP 1YPEG = 46.63/162 = 0.29
EPS Growth (non-GAAP)
2015 Q3 TTM Earnings = 2.03
2016 Q3 TTM Earnings = 3.62
Year Over Year EPS Growth =78.3%, previous quarter 64%
Non-GAAP P/E (Check Current Price) = 120.77/3.62 = 33.36
Non-GAAP 1YPEG = 33.36/78.3 = 0.43
Here are some of last quarter’s other highlights:
DAUs (Daily Active Users): 1.18B, +17% YOY
Mobile DAUs: 1.09B, +22% YOY
MAUs (monthly active users): 1.79B, +16% YOY
Mobile MAUs: 1.66B, +20% YOY
Cash and cash equivalents: $26.14B, previous quarter $23.29B, +12.2% sequentially
Matt
Long AMZN, FB, PYPL
MasterCard (MA), Nestle (NSRGY), PayPal (PYPL), and Verizon (VZ) Ticker Guide
See all my holdings at http://my.fool.com/profile/CMFCochrane/info.aspx