1. How to use GuruFocus - Tutorials
  2. What Is in the GuruFocus Premium Membership?
  3. A DIY Guide on How to Invest Using Guru Strategies
Articles (129) 

Facebook's Increasing Advertising Dominance Makes It a Smart Investment

August 25, 2014 | About:

Facebook (NASDAQ:FB) is on a tremendous run in 2014. The social systems administration organization's stock has effectively picked up more than 27% this year; however there is no sign of a slowdown. Facebook is attempting to be more than just a social media system; it is attempting to become one of the top advertisement systems as well. Hence, Facebook has been boosting its advertising capabilities, both on the desktop and mobile, and is giving serious rivalry to Internet titan Google (GOOG) (GOOGL).

Making an imprint in advertising

emarketer expects overall mobile web commercial spending to arrive at about $32 billion in 2014, up 75% from last year. Facebook is as of now capitalizing on this development. As emarketer reports, Facebook's share of mobile notice spending in 2012 was just 5.4%, yet this number developed to 17.5% in 2013. This year, it is normal that Facebook will summon 21.7% of mobile notice spending, at the expense of Google. Google's mobile advertisement spending share has gone down from around 53% in 2012 to less than 50% last year. In 2014, the search monster's business is expected to disintegrate further to less than 47%.

Unmistakably, Facebook is making fast strides in mobile. It conveyed robust year-over-year development of 82% in advertising in the first quarter, its strongest yearly development rate in almost three years. Mobile ads alone represented 59% of its advertisement revenue. Moreover, it is normal that Facebook will overwhelm Google in display ads in the U.S. market in 2014.

Impressive strategies

Facebook is aggressively stretching its advertisement stage. It is focusing on creating its promoting/advertising stage for small and medium enterprises, corporations and entrepreneurs, who are using Facebook more and more to advertise their products and services through various ads, links and referrals. Also, Facebook as of late reported its new Connectivity Lab that should help the organization create technologies to grow Internet access universally, and increase its addressable market in the process.

Facebook's Creative Labs venture is expected to be an alternate development driver for the organization. Also, Facebook is continuously overhauling its center products and businesses through Messenger and Instagram. Actually, Facebook believes that it has significant opportunities to create new products such as premium feature, ads on Instagram and so forth.

In line with this activity, the organization as of late advertised the acquisition of Liverail, an online feature advertising organization. It is estimated that Facebook paid around $400 million-$500 million for the acquisition, however it is expected to enjoy various benefits as a result of this purchase.

Liverail should enable Facebook to improve its standing in advanced promotion spending further, and permit it to contend with Google all the more adequately.


In addition, a glance at Facebook's valuation indicates that it is a development pick. The stock presently trades at a high trailing P/E and a low forward P/E, demonstrating robust earnings development later on. The organization also has an extremely strong operating margin of 40.64%, path better than Google's 23.21%. Furthermore, Facebook's asset report looks solid. It has produced operating cash stream of $4.79 billion in the last one year, alongside levered free cash stream of $3.14 billion. Its complete obligation stands at just $392 million, easily eclipsed by its strong cash heap of $12.63 billion.

Additionally, its development projections are also brilliant. Analysts anticipate that its bottom line will develop at a CAGR of 34% through the following five years, route better than industry's normal of 20%. Thus, Facebook looks like a solid development pick as it is establishing its strength in advertising, and is outmuscling Google in the progress.

Rating: 0.0/5 (0 votes)


Please leave your comment:

Select portfolio(s):

  • Loading...

Why you are interested?

Your selection and notes will be stored in your portfolio.

Login to add portfolio
Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)