|New Threads Only:|
|New Threads & Replies:|
Forum List » Value Ideas and Strategies|
Share and discuss value investing ideas and investing strategies.
Is Facebook Now Singing Good?
Posted by: Muhammad Bazil (IP Logged)
Date: October 17, 2013 09:50AM
In the last six months, it appears that Facebook (FB), that social media giant, has finally warmed itself into the heart of the investing public because it seems everyone is now buying Facebook and, hence, the price of the stock has gone up by about 105% within three months. That price gain was unthinkable about a year ago when investors continued to dump the stock because Facebook served them hefty doses of gloomy and uninspiring quarter results. That trend has changed in the past six months and the company is now positioned to answer its shareholders just as it has been striving to satisfy the yearnings of its 1.1 billion users across the globe.
Really, the issue at the center of the disappointing results of Facebook’s past quarters since it became a publicly quoted firm last year was the inability of the company to figure out how to tap improved earnings from its teeming users. At least, that code wasn’t cracked early in the life of the quoted company so that many investors couldn’t see the intrinsic monetization jewels inherent in the social media giant just the way they could see through the earnings prowess of Google (GOOG) and LinkedIn (LNKD). In the last three months, many analysts have started to have faith in Facebook seeing that the company has created streams of reliable sources of ad revenues. Recently, Thursday, Sept. 26 to be precise, Facebook stock surged above $50 for the first time and as at today which is about four weeks after, the price of the stock is still hovering relentlessly around $50 showing that the surge has some fundamental reasons supporting it.
At this juncture, the most logical thing for value investors to do is to start to think of the possibility of Facebook delivering significant upside going forward and, hence, position themselves for great trading opportunities. The recent surge in Facebook’s stock price isn’t a chance occurrence and I think the question the investing public should be asking is: Is Facebook now positioned to generate improved financials that would delight investors? And can the growth continue? Yeah, really! I think that the company has planted viable seeds in ad revenue sources that could guarantee impressive results for value investors for the foreseeable future. Here are a few of my findings:
1. Facebook has taken its time to build the base for effective monetization in different fronts. Top of these fronts is the advertising revenues from the mobile space. In its last quarter results, Facebook announced that it earned about $656 million from advertising and the biggest was mobile advertising that generated about 41% of its total advertising income up from 30% in the previous quarter.
2. Other sources of revenues the company has built but yet to take traction includes video advertising, Instagram advertising, graph search inside FBX exchange, PayPal style of payments, e-commerce, off-Facebook mobile ad network that allows advertisers to target users even when they off Facebook apps, off-Facebook ad stream where Atlas ad server acquired from Microsoft is deployed, and the mobile app cloud development site called Parse. All of these revenue streams may not come good if using Google’s experience is anything to go by but Facebook only require just two or three of these sources that could generate up to $1 billion each quarter to sustain its growth tempo.
3. Facebook has become a global company that transcends the American phenomenon. So, we should expect more revenues as the company takes traction across the globe with its different revenue initiatives.
Facebook’s Valuation Metrics
Many valuation experts including those at Citigroup have upgraded Facebook to a buy citing the sustainability of its current growth rate. In fact, an analyst at Citigroup, Mark May, specifically stated the following:
"Following several conversations with advertisers and agencies we believe the factors driving the sudden inflection and growth in (the second quarter) are sustainable and that there are a number of factors that should contribute to further growth and gains."
No value investor should ignore that statement because it shows that there are strong fundamentals driving the current surge in the stock price of Facebook. The company is indeed looking strong with its earnings potentials and looking to build a good position on any pullbacks is reasonable. Currently, global ad spending hovers around $529 billion and about $94 billion of this goes for online ad spending where Facebook stands to profit more with its current focus on ad revenues.
Stocks Discussed: FB, GOOG, LNKD,